Donoghue v Stevenson - Essay Example

Donoghue v Stevenson (1932) AC 562 and Caparo Industries v Dickman (1990) 2 AC 605 Explained Donoghue v Stevenson case involves an action brought by Mrs MAlister or Donoghue against Stevenson, the aerated water manufacturer of Paisley, claiming £500 as damages for injuries she sustained allegedly as a result of her drinking ginger beer manufactured by the defender ([1932] AC 562). The incident happened when Mrs. Donoghue and her friend went to a shop in Paisley where her friend purchased ice cream, and ginger beer to be used with the ice cream as an iced drink for Mrs. Donoghue to drink ([1932] AC 562). The ginger beer was said to have been contained in an opaque bottle, which did not permit the contents from being examined clearly ([1932] AC 562). According to the said case, Mrs. Donoghue did not have a direct nor an indirect claim based on contractual obligation, against the manufacturer as she did not purchase the product herself ([1932] AC 562). Mrs. Donoghue had already consumed some of the product when the decomposed remains of a snail came out from the bottle ([1932] AC 562). She then sought damages against the manufacturer, Stevenson, claiming that she suffered nervous shock and gastro-enteritis, because of the incident ([1932] AC 562). The trial judge found favor in the plaintiff’s action, but the Court of Appeal however overturned this decision ([1932] AC 562). Hence, the plaintiff appealed to the House of Lords ([1932] AC 562). Hence, the issue in this case was whether Stevenson, the defendant, owed Mrs. Donoghue a duty of care ([1932] AC 562). The decision was ruled in favor of the plaintiff allowing the appeal and remitting the case to the Court of Session in Scotland. Lord Atkin, in his speech stated that, “You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour,” ([1932] AC 562). In explaining who were considered as a neighbour in this case, Lort Atkin explains that these are persons who are so closely and directly affected by the ones ought to be reasonably affected by the acts or omissions called in question ([1932] AC 562). Citing the doctrine of Heaven v. Pender, on the notion of proximity, he explained, “Under certain circumstances, one man may owe a duty to another, even though there is no contract between them, as if one man is near to another, or is near to the property of another, a duty lies upon him not to do that which may cause a personal injury to that other, or may injure his property,” ([1932] AC 562). He further explained that this principle was founded upon the duty to take due care when the person or property of one was in such proximity to the person or property of another that, if due care was not taken, damage might be done by the one to the other ([1932] AC 562). Proximity was not only confined to a mere physical proximity, but extends to such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his act ([1932] AC 562). Applied in this case, the manufacturer owes a duty to the consumer to be careful, wherein he sells his products in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him, with no reasonable possibility of intermediate examination, and with the knowledge that the absence of reasonable care in the preparation or putting up of the products will result in an injury to the consumers life or property ([1932] AC 562). This opinion were in turn supported by both Lords Thankerton and MacMillan, adding that in the present case, the article of consumption is so prepared as to be intended to reach the consumer in the condition in which it leaves the manufacturer, and the manufacturer must take steps to ensure this by sealing or otherwise closing the container so that the contents cannot be tampered with his control as remaining effective until the article reaches the consumer and the container is opened by him ([1932] AC 562). The Caparo Industries v Dickman case on the other hand, involves a well- known firm of chartered accountants who were the auditors of a public limited company called Fidelity, that carried on the business as manufacturers and vendors of electrical equipment and whose shares were quoted on the London Stock Exchange ([1990] 2 AC 605). Sometime in May 1984, the directors of Fidelity announced the results for the year ended 31 March 1984, revealing that profits for the year fell well short of the figure than that predicted, and this resulted in a dramatic drop in the quoted price of the shares ([1990] 2 AC 605). Fidelitys accounts had been audited by the appellants and had been approved by the directors on the day before the results were announced ([1990] 2 AC 605). On 12 June 1984, they were issued to the shareholders, with notice of the annual general meeting ([1990] 2 AC 605). Following this, the respondents Caparo began to purchase shares of Fidelity in the market ([1990] 2 AC 605). Caparo then alleges that the purchases of shares which took place after 12 June 1984 and the subsequent bid were all made in reliance upon the accounts and that those accounts were inaccurate and misleading in that it overvalued the stock and it underprovided the after sales credits ([1990] 2 AC 605). Caparo alleged that had the true facts been known, it would not have made a bid at the price paid or indeed at all ([1990] 2 AC 605). Caparo accordingly commenced proceedings against two of the persons who were directors at that time, claiming that the overvaluations were made fraudulently, and against the appellants, claiming that they were negligent in certifying, that the accounts showed a true and fair view of Fidelitys position ([1990] 2 AC 605). The issue in this case was whether a duty of care existed in the circumstances as alleged by the plaintiff ([1990] 2 AC 605). An unfavorable decision against the plaintiff was made at the first instance but was successful in the Court of Appeal stating that whilst there was no relationship between an auditor and a potential investor sufficiently proximate to give rise to a duty of care at common law, there was such a relationship with individual shareholders, so that an individual shareholder who suffered loss by acting in reliance on negligently prepared accounts, whether by selling or retaining his shares or by purchasing additional shares, was entitled to recover in tort ([1990] 2 AC 605). Hence, this appeal to the Lordship’s House and plaintiffs claim that the appellants owed them a duty of care as potential investors ([1990] 2 AC 605). The House of Lords overturned the decision of the Court of Apepeal and held that there was no duty of care owed by the auditors ([1990] 2 AC 605). Using the threefold test of foreseeability, proximity and fairness, Lord Bridge explains that in addition to the foreseeability of damage, “there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of ‘proximity’ or ‘neighbourhood’ and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other,” ([1990] 2 AC 605). It further explained that the statutory requirement for an audit of public companies under the Companies Act 1985 was the making of a report to enable shareholders to exercise their class rights in general meeting but did not extend to the provision of information to assist shareholders in the making of decisions as to future investment in the company ([1990] 2 AC 605). The decision also explained that liability other than to the company should depend on whether there was indeed a sufficient relationship of proximity which would require showing that the auditors knew that their statement would be communicated to the claimant, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind, and that the claimant would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind ([1990] 2 AC 605). In this case, there was no relevant duty on the part of the auditors to anyone who might purchase shares in the company on the strength of the audited accounts, as they were not part of an identifiable class ([1990] 2 AC 605). Equally, while there was a duty owed to the shareholders, it was only owed to them as members of the company and not in the capacity of potential buyers of shares ([1990] 2 AC 605). Does the spirit in Donoghue v Stevenson still survive after Caparo Industries v Dickman? Caparo Industries case expounds on the case of Donoghue v Stevenson, which not only adds to the neighbour principle, or the forseeability described in the case, but also considers proximity and fairness in determining the duty of care owed to another. Cases still make use and apply the principle enunciated in Donoghue v Stevenson especially in direct damage cases where the facts of the case reveal that the damage was caused directly by a reliance upon a misstatement (Murphy v Brentwood District Council [1991] 1 AC 398, 486 (Lord Oliver). In this case, the recognition of duties of care would rely substantially upon the presence of foreseeability of harm and in either physical closeness between the parties or some other tight causal connection (Murphy v Brentwood District Council [1991]). Thus, the element of direct causation of the damage is that which proves the tightness of the causal connection between the parties (Murphy v Brentwood District Council [1991]). Similarly, in Marc Rich & Co AG v Bishop Rock Marine Co, Lord Steyn emphasized the importance of ‘directness of damage in determining questions of proximity ([1996] AC 211). He stated that the law ‘more readily attaches the consequences of actionable negligence to directly inflicted physical loss than to indirectly inflicted physical loss’ ([1996] AC 211). In Perrett v Collins, Buxton LJ also considered the matter of ‘directness’ to be important in the determination of physical loss cases ([1998] 2 Lloyds Rep 255). In his Lordships view, there is ordinarily no need to consider issues of proximity and policy in cases where damage is directly caused ([1998] 2 Lloyds Rep 273). In Clay v Crump, [1964] 1 QB 533, Upjohn LJ found that it was foreseeable that the claimant worker would be ‘naturally and normally be the one of the first to work on the site after the demolition contractors had withdrawn’, [1964] 1 QB 567, thus making him especially susceptible to physical injury in a case where an architect stated that it was safe, which it was really not, to leave standing an old wall located next to a workers’ hut (Clay v Crump, [1964] 1 QB 533). However, in ‘indirect’ physical damage cases wherein there was a ‘substantial’ degree of human intervention in the chain of events that led to damage, the principles of Donoghue v Stevenson were said to be insufficient in determining the duty of care (Witting, 2005). Witting explains that other factors must be considered in order to establish why it is that the defendant can be said to have been ‘so placed’ that he or she had within his or her power the substantial ability to avoid the causation of injury to the claimant. Factors such as directions and control, inducement, requests, special knowledge and vulnerability must be taken into consideration especially in establishing the requisite degree of proximity between the statement maker and the recipient ((Witting, 2005). Hence, in cases where three party cases is involved, it is essential for the claimant to establish that the defendant ‘assumed a responsibility’ towards him or her, and foreseeability of harm alone is not sufficient (Witting, 2005). Having knowledge that there is likelihood of reliance by a person or class upon the statement is important in cases where a large number of persons might foreseeably rely upon it for their own independent purposes (Caparo Industries plc v Dickman [1990] 2 AC 605). However, the importance of reliance as a duty factor in recent cases has been downgraded as it will merely be a factor going to the establish the causal link between breach and damage to the claimant (Witting, 2005). Nevertheless, the principle of foreseeability as enunciated in Donoghue v Stevenson still establishes whether or not his or her failure to take care could result in negative consequences for others and which are still referred to in several cases (Howarth 2006). This is still recognized as significant in cases involving tort and in particular negligence cases (Stanton 2006). References Donoghue v Stevenson [1932] AC 562. Caparo Industries v Dickman [1990] 2 AC 605. Clay v Crump, [1964] 1 QB 533. Howarth, David (2006). Many Duties Of Care--Or A Duty Of Care? Notes From The Underground. 26 Oxford Journal of Legal Studies 449. Marc Rich & Co AG v Bishop Rock Marine Co, [1996] AC 211. Murphy v Brentwood District Council [1991] 1 AC 398, 486. Perrett v Collins, [1998] 2 Lloyds Rep 255. Stanton, Keith (2006). Professional Negligence: Duty Of Care Methodology In The Twenty First Century. P.N. 2006, 22(3), 134-150. Witting, Christian (2005). Duty Of Care: An Analytical Approach. 25 Oxford Journal of Legal Studies 33. Read More