Assignment No 2: Explain in detail the following cases with the theory behind it.Case No 1: Turquand RuleCase No 2: Foss v HarbottleCase No 3: Rylands v Fletcher

Royal British Bank v TurquandFrom Wikipedia, the free encyclopedia

Royal British Bank v Turquand

Court Court of Exchequer

Judge(s) sitting Lord Jervis CJ

Keywords

Indoor management rule

Royal British Bank v Turquand (1856) 6 E&B 327 is a UK company law case that held people transacting

with companies are entitled to assume that internal company rules are complied with, even if they are not. This

"indoor management rule" or the "Rule in Turquand's Case" is applicable in most of the common law world. It

originally mitigated the harshness of the constructive notice doctrine, and in the UK it is now supplemented by

theCompanies Act 2006 sections 39-41.

Contents

  [hide] 

1   Facts

2   Judgment

3   Significance

4   See also

5   Notes

[edit]Facts

Mr Turquand was the official manager (liquidator) of the insolvent ‘Cameron’s Coalbrook Steam, Coal, and

Swansea and London Railway Company’. It was incorporated under the Joint Stock Companies Act 1844. The

company had given a bond for £2000 to the Royal British Bank, which secured the company’s drawings on its

current account. The bond was under the company’s seal, signed by two directors and the secretary. When the

company was sued, it alleged that under its registered deed of settlement (the articles of association), directors

only had power to borrow what had been authorised by a company resolution. A resolution had been passed

but not specifying how much the directors could borrow.

[edit]Judgment

Sir John Jervis CJ, for the Court of Exchequer Chamber affirmed the Queen’s Bench and said that it was valid,

so the Royal British Bank could enforce the terms of the bond. He said the bank was deemed to be aware that

the directors could borrow only up to the amount resolutions allowed. Articles of association were registered in

Companies House, so there was constructive notice. But the bank could not be deemed to know about which

ordinary resolutions passed, because these were not registrable. The bond was valid, because there was no

requirement to look into the company’s internal workings. This is the ‘indoor management rule’, that the

company’s indoor affairs are the company’s problem. Jervis CJ gave the judgment of the Court.

“I am of opinion that the judgment of the Court of Queen's Bench ought to be affirmed. I incline to think that the question which has been principally argued both here and in that Court does not necessarily arise, and need not be determined. My impression is (though I will not state it as a fixed opinion) that the resolution set forth in the replication [332] goes far enough to satisfy the requisites of the deed of settlement. The deed allows the directors to borrow on bond such sum or sums of money as shall from time to time, by a resolution passed at a general meeting of the Company, be authorized to be borrowed: and the replication shews a resolution, passed at a general meeting, authorizing the directors to borrow on bond such sums for such periods and at such rates of interest as they might deem expedient, in accordance with the deed of settlement and the Act of Parliament; but the resolution does not otherwise define the amount to be borrowed. That seems to me enough. If that be so, the other question does not arise. But whether it be so or not we need not decide; for it seems to us that the plea, whether we consider it as a confession and avoidance or a special Non est factum, does not raise any objection to this advance as against the Company. We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and that the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here, on reading the deed of settlement, would find, not a prohibition from borrowing, but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appeared to be legitimately done. ”

Pollock CB, Alderson B, Cresswell J, Crowder J and Bramwell B concurred.

[edit]Significance

The rule in Turquand's case was not accepted as being firmly entrenched in law until it was endorsed by

the House of Lords. In Mahony v East Holyford Mining Co [1]  Lord Hatherly phrased the law thus:

“When there are persons conducting the affairs of the company in a manner which appears to be perfectly consonant with the articles of association, those so dealing with them externally are not to be affected by irregularities which may take place in the internal management of the company. ”

So, in Mahony, where the company's articles provided that cheques should be signed by any two of the three

named directors and by the secretary, the fact that the directors who had signed the cheques had never been

properly appointed was held to be a matter of internal management, and the third parties who received those

cheques were entitled to presume that the directors had been properly appointed, and cash the cheques.

The position in English law is now superseded by section 40[citation needed] of the Companies Act 2006,[2] but the

Rule in Turquand's Case is still applied throughout many common law jurisdictions in the Commonwealth.

According to the Turquand rule, each outsider contracting with a company in good faith is entitled to assume

that the internal requirements and procedures have been complied with. The company will consequently be

bound by the contract even if the internal requirements and procedures have not been complied with. The

exceptions here are: if the outsider was aware of the fact that the internal requirements and procedures have

not been complied with (acted in bad faith); or if the circumstances under which the contract was concluded on

behalf of the company were suspicious.

However, it is sometimes possible for an outsider to ascertain whether an internal requirement or procedure

has been complied with. If it is possible to ascertain this fact from the company's public documents, the

doctrine of disclosure and the doctrine of constructive notice will apply and not the Turquand rule. The

Turquand rule was formulated to keep an outsider's duty to inquire into the affairs of a company within

reasonable bounds, but if the compliance or noncompliance with an internal requirement can be ascertained

from the company's public documents, the doctrine of disclosure and the doctrine of constructive notice will

apply. If it is an internal requirement that a certain act should be approved by special resolution, the Turquand

rule will therefore not apply in relation to that specific act, since a special resolution is registered

with Companies House (in the United Kingdom), and is deemed to be public information.

Foss v HarbottleFrom Wikipedia, the free encyclopedia

Foss v Harbottle

Citation(s) (1843) 67 ER 189, (1843) 2 Hare 461

Case opinions

Wigram VC

Keywords

Derivative action, separate legal personality

Foss v Harbottle (1843) 67 ER 189 is a leading English precedent in corporate law. In any action in which a

wrong is alleged to have been done to a company, the proper claimant is the company itself. This is known as

"the rule in Foss v Harbottle", and the several important exceptions that have been developed are often

described as "exceptions to the rule in Foss v Harbottle". Amongst these is the 'derivative action', which allows

a minority shareholder to bring a claim on behalf of the company. This applies in situations of 'wrongdoer

control' and is, in reality, the only true exception to the rule. The rule in Foss v Harbottle is best seen as the

starting point for minority shareholder remedies.

Contents

  [hide] 

1   Facts

2   Judgment

3   Developments

4   Exceptions to the rule

5   See also

6   Notes

[edit]Facts

Richard Foss and Edward Starkie Turton were two minority shareholders in the "Victoria Park Company". The

company had been set up in September 1835 to buy 180 acres (0.73 km2) of land near Manchester and,

according to the report,

"enclosing and planting the same in an ornamental and park-like manner, and erecting houses thereon with

attached gardens and pleasure-grounds, and selling, letting or otherwise disposing thereof".

This became Victoria Park, Manchester. Subsequently, an Act of Parliament incorporated the company.[1] The

claimants alleged that property of the company had been misapplied and wasted and various mortgages were

given improperly over the company's property. They asked that the guilty parties be held accountable to the

company and that a receiver be appointed.

The defendants were the five company directors (Thomas Harbottle, Joseph Adshead, Henry Byrom, John

Westhead, Richard Bealey) and the solicitors and architect (Joseph Denison, Thomas Bunting and Richard

Lane); and also H Rotton, E Lloyd, T Peet, J Biggs and S Brooks, the several assignees of Byrom, Adshead

and Westhead, who had become bankrupts.

[edit]Judgment

The court dismissed the claim and held that when a company is wronged by its directors it is only the company

that has standing to sue. In effect the court established two rules. Firstly, the "proper plaintiff rule" is that a

wrong done to the company may be vindicated by the company alone. Secondly, the "majority rule principle"

states that if the alleged wrong can be confirmed or ratified by a simple majority[disambiguation needed] of members in

a general meeting, then the court will not interfere, cadit quaestio .

“The Victoria Park Company is an incorporated body, and the conduct with which the Defendants are charged in this suit is an injury not to the Plaintiffs exclusively; it is an injury to the whole corporation by individuals whom the corporation entrusted with powers to be exercised only for the good of the corporation. And from the case of The Attorney-General v Wilson (1840) Cr & Ph 1 (without going further) it may be stated as undoubted law that a bill or information by a corporation will lie to be relieved in respect of injuries which the corporation has suffered at the hands of persons standing in the situation of the directors upon this record. This bill, however, differs from that in The Attorney-General v Wilson in this—that, instead of the corporation being formally represented as Plaintiffs, the bill in this case is brought by two individual corporators, professedly on behalf of themselves and all the other members of the corporation, except those who committed the injuries complained of—the Plaintiffs assuming to themselves the right and power in that manner to sue on behalf of and represent the corporation itself.

It was not, nor could it successfully be, argued that it was a matter of course for any individual members of a corporation

thus to assume to themselves the right of suing in the name of the corporation. In law the corporation and the aggregate

members of the corporation are not the same thing for purposes like this; and the only question can be whether the facts

alleged in this case justify a departure from the rule which, primâ facie , would require that the corporation should sue in

its own name and in its corporate character, or in the name of someone whom the law has appointed to be its

representative...

The first objection taken in the argument for the Defendants was that the individual members of the corporation cannot in

any case sue in the form in which this bill is framed. During the argument I intimated an opinion, to which, upon further

consideration, I fully adhere, that the rule was much too broadly stated on the part of the Defendants. I think there are cases

in which a suit might properly be so framed. Corporations like this, of a private nature, are in truth little more than private

partnerships; and in cases which may easily be suggested it would be too much to hold that a society of private persons

associated together in undertakings, which, though certainly beneficial to the public, are nevertheless matters of private

property, are to be deprived of their civil rights, inter se , because, in order to make their common objects more attainable,

the Crown or the Legislature may have conferred upon them the benefit of a corporate character. If a case should arise of

injury to a corporation by some of its members, for which no adequate remedy remained, except that of a suit by individual

”

corporators in their private characters, and asking in such character the protection of those rights to which in their

corporate character they were entitled, I cannot but think that the principle so forcibly laid down by Lord Cottenham

in Wallworth v Holt  (4 Myl & Cr 635; see also 17 Ves 320, per Lord Eldon) and other cases would apply, and the claims

of justice would be found superior to any difficulties arising out of technical rules respecting the mode in which

corporations are required to sue.

But, on the other hand, it must not be without reasons of a very urgent character that established rules of law and practice

are to be departed from, rules which, though in a sense technical, are founded on general principles of justice and

convenience; and the question is whether a case is stated in this bill entitling the Plaintiffs to sue in their private

characters...

Now, that my opinion upon this case may be clearly understood, I will consider separately the two principal grounds of

complaint to which I have adverted, with reference to a very marked distinction between them. The first ground of

complaint is one which, though it might primâ facie entitle the corporation to rescind the transactions complained of, does

not absolutely and of necessity fall under the description of a void transaction. The corporation might elect to adopt those

transactions, and hold the directors bound by them. In other words, the transactions admit of confirmation at the option of

the corporation. The second ground of complaint may stand in a different position; I allude to the mortgaging in a manner

not authorized by the powers of the Act. This, being beyond the powers of the corporation, may admit of no confirmation

whilst any one dissenting voice is raised against it. This distinction is found in the case of Preston v The Grand Collier

Dock Company (1840) 11 Sim 327, SC; 2 Railway Cases 335.

On the first point it is only necessary to refer to the clauses of the Act to shew that, whilst the supreme governing body, the

proprietors at a special general meeting assembled, retain the power of exercising the functions conferred upon them by the

Act of Incorporation, it cannot be competent to individual corporators to sue in the manner proposed by the Plaintiffs on

the present record. This in effect purports to be a suit by cestui que trusts  complaining of a fraud committed or alleged to

have been committed by persons in a fiduciary character. The complaint is that those trustees have sold lands to

themselves, ostensibly for the benefit of the cestui que trusts. The proposition I have advanced is that, although the Act

should prove to be voidable, the cestui que trusts may elect to confirm it. Now, who are the cestui que trusts in this case?

The corporation, in a sense, is undoubtedly the cestui que trust; but the majority of the proprietors at a special general

meeting assembled, independently of any general rules of law upon the subject, by the very terms of the incorporation in

the present case, has power to bind the whole body, and every individual corporator must be taken to have come into the

corporation upon the terms of being liable to be so bound. How then can this Court act in a suit constituted as this is, if it is

to be assumed, for the purposes of the argument, that the powers of the body of the proprietors are still in existence, and

may lawfully be exercised for a purpose like that I have suggested? Whilst the Court may be declaring the acts complained

of to be void at the suit of the present Plaintiffs, who in fact may be the only proprietors who disapprove of them, the

governing body of proprietors may defeat the decree by lawfully resolving upon the confirmation of the very acts which

are the subject of the suit. The very fact that the governing body of proprietors assembled at the special general meeting

may so bind even a reluctant minority is decisive to shew that the frame of this suit cannot be sustained whilst that body

retains its functions...

...

The second point which relates to the charges and incumbrances alleged to have been illegally made on the property of the

company is open to the reasoning which I have applied to the first point, upon the question whether, in the present case,

individual members are at liberty to complain in the form adopted by this bill; for why should this anomalous form of suit

be resorted to, if the powers of the corporation may be called into exercise? But this part of the case is of greater difficulty

upon the merits. I follow, with entire assent, the opinion expressed by the Vice-Chancellor in Preston v The Grand Collier

Dock Company, that if a transaction be void, and not merely voidable, the corporation cannot confirm it, so as to bind a

dissenting minority of its members. But that will not dispose of this question. The case made with regard to these

mortgages or incumbrances is, that they were executed in violation of the provisions of the Act. The mortgagees are not

Defendants to the bill, nor does the bill seek to avoid the security itself, if it could be avoided, on which I give no opinion.

The bill prays inquiries with a view to proceedings being taken aliunde to set aside these transactions against the

mortgagees. The object of this bill against the Defendants is to make them individually and personally responsible to the

extent of the injury alleged to have been received by the corporation from the making of the mortgages. Whatever the case

might be, if the object of the suit was to rescind these transactions, and the allegations in the bill shewed that justice could

not be done to the shareholders without allowing two to sue on behalf of themselves and others, very different

considerations arise in a case like the present, in which the consequences only of the alleged illegal Acts are sought to be

visited personally upon the directors. The money forming the consideration for the mortgages was received, and was

expended in, or partly in, the transactions which are the subject of the first ground of complaint. Upon this, one question

appears to me to be, whether the company could confirm the former transactions, take the benefit of the money that has

been raised, and yet, as against the directors personally, complain of the acts which they have done, by means whereof the

company obtains that benefit which I suppose to have been admitted and adopted by such confirmation. I think it would

not be open to the company to do this; and my opinion already expressed on the first point is that the transactions which

constitute the first ground of complaint may possibly be beneficial to the company, and may be so regarded by the

proprietors, and admit of confirmation. I am of opinion that this question—the question of confirmation or avoidance—

cannot properly be litigated upon this record, regard being had to the existing state and powers of the corporation, and that

therefore that part of the bill which seeks to visit the directors personally with the consequences of the impeached

mortgages and charges, the benefit of which the company enjoys, is in the same predicament as that which relates to the

other subjects of complaint. Both questions stand on the same ground, and, for the reasons which I stated in considering

the former point, these demurrers must be allowed.

[edit]Developments

The rule was later extended to cover cases where what is complained of is some internal irregularity in the

operation of the company. However, the internal irregularity must be capable of being confirmed/sanctioned by

the majority.

The rule in Foss v Harbottle has another important implication. A shareholder cannot generally bring a claim to

recover any reflective loss - a diminution in the value of his or her shares in circumstances where the

diminution arises because the company has suffered an actionable loss. The proper course is for the company

to bring the action and recoup the loss with the consequence that the value of the shares will be restored.

Because Foss v Harbottle leaves the minority in an unprotected position, exceptions have arisen and statutory

provisions have come into being which provide some protection for the minority. By far and away the most

important protection is the unfair prejudice action in ss. 994-6 of the Companies Act 2006 (UK) (s

232 Corporations Act 2001 in Australia). Also, there is a new statutory derivate action available under ss 260-

269 of the 2006 Act (and s 236 Corporations Act 2001 in Australia).

[edit]Exceptions to the rule

There are certain exceptions to the rule in Foss v. Harbottle, where litigation will be allowed. The following

exceptions protect basic minority rights, which are necessary to protect regardless of the majority's vote.

1. Ultra vires and illegality

The directors of a company, or a shareholding majority may not use their control of the company to paper over

actions which would be ultra vires the company, or illegal.

s 39 Companies Act 2006 for the rules on corporate capacity

Smith v Croft (No 2)  and Cockburn v. Newbridge Sanitary Steam Laundry Co. [1915] 1 IR 237, 252-59 (per

O'Brien LC and Holmes LJ) for the illegality point

2. Actions requiring a special majority

If some special voting procedure would be necessary under the company's constitution or under the

Companies Act, it would defeat both if that could be sidestepped by ordinary resolutions of a simple majority,

and no redress for aggrieved minorities to be allowed.

Edwards v Halliwell  [1950] 2 All ER 1064

3. Invasion of individual rights

Pender v Lushington  (1877) 6 Ch D 70, per Jessel MR

...and see again, Edwards v Halliwell [1950] 2 All ER 1064

4. "Frauds on the minority"

Atwool v Merryweather  (1867) LR 5 EQ 464n, per Page Wood VC

Gambotto v WCP Limited  (1995) 182 CLR 432 (Aus)

...and see Greenhalgh v Arderne Cinemas Ltd  for an example of what was not a fraud on the minority

Rylands v FletcherFrom Wikipedia, the free encyclopedia

Rylands v Fletcher

Court House of Lords

Full case name John Rylands and Jehu Horrocks v Thomas Fletcher

Date decided 17 July 1868

Citation(s) [1868] UKHL 1, (1868) LR 3 HL 330

Transcript(s) Full text of House of Lords decision

Judge(s) sitting Lord Cairns, LC

Lord Cranworth

Case history

Prior action(s) Court of Assize

Exchequer of Pleas

Court of Exchequer Chamber([1866] LR 1 Ex 265)

Case opinions

Lord Cairns, LC

Lord Cranworth

Keywords

Strict liability, nuisance

Rylands v Fletcher [1868] UKHL 1 was a decision by the House of Lords which established a new area

of English tort law. Rylands employed contractors to build a reservoir, playing no active role in its construction.

When the contractors discovered a series of old coal shafts improperly filled with debris, they chose to continue

work rather than properly blocking them up. The result was that on 11 December 1860, shortly after being filled

for the first time, Rylands's reservoir burst and flooded a neighbouring mine, run by Fletcher, causing £937

worth of damage. Fletcher brought a claim under negligence, through which the case eventually went to

the Exchequer of Pleas.[1] The majority ruled in favour of Rylands; however, Bramwell B, dissenting, argued

that the claimant had the right to enjoy his land free of interference from water, and that as a result the

defendant was guilty of trespass and the commissioning of a nuisance. Bramwell's argument was affirmed,

both by the Court of Exchequer Chamber and the House of Lords, leading to the development of the "Rule

in Rylands v Fletcher"; that "the person who for his own purpose brings on his lands and collects and keeps

there anything likely to do mischief, if it escapes, must keep it in at his peril, and if he does not do so, is prima

facie answerable for all the damage which is the natural consequence of its escape".[2]

This doctrine was further developed by English courts, and made an immediate impact on the law. Prior

to Rylands, English courts had not based their decisions in similar cases on strict liability, and had focused on

the intention behind the actions rather than the nature of the actions themselves. In contrast, Rylands imposed

strict liability on those found detrimental in such a fashion without having to prove a duty of care or negligence,

which brought the law into line with that relating to public reservoirs and marked a significant doctrinal shift.

Academics have criticised it, however, both for the economic damage such a doctrine could cause and for its

limited applicability.

The tort of Rylands v Fletcher has been disclaimed in various jurisdictions, including Scotland, where it was

described as "a heresy that ought to be extirpated",[3] and Australia, where the High Court chose to destroy the

doctrine in Burnie Port Authority v General Jones Pty Ltd. Within England and Wales,

however, Rylands remains valid law, although the decisions in Cambridge Water Co Ltd v Eastern Counties

Leather plc and Transco plc v Stockport Metropolitan Borough Council make it clear that it is no longer an

independent tort, but instead a sub-tort of nuisance.

Contents

[hide]

1 Facts

2 Judgment

o 2.1 Liverpool Assizes

o 2.2 Exchequer of Pleas

o 2.3 Court of Exchequer Chamber

o 2.4 House of Lords

3 Significance

o 3.1 Change to the law

o 3.2 Assessment

o 3.3 England and Wales

3.3.1 Developments

3.3.2 Brings, collects and keeps

3.3.3 Mischief and escape

3.3.4 Non-natural use

3.3.5 Defences

o 3.4 Scotland

o 3.5 United States

o 3.6 Australia

4 See also

5 Notes

6 References

7 External links

[edit]Facts

In 1860, John Rylands paid contractors to build a reservoir on his land, intending that it should supply the

Ainsworth Mill with water. Rylands played no active role in the construction, instead contracting out to a

competent engineer. While building it, the contractors discovered a series of old coal shafts and passages

under the land filled loosely with soil and debris, which joined up with Thomas Fletcher's adjoining mine.

[4] Rather than blocking these shafts up, the contractors left them.[5] On 11 December 1860, shortly after being

filled for the first time, Rylands's reservoir burst and flooded Fletcher's mine, the Red House Colliery, causing

£937 worth of damage.[6] Fletcher pumped the water out, but on 17 April 1861 his pump burst, and the mine

again began to flood. At this point a mines inspector was brought in, and the sunken coal shafts were

discovered.[7] Fletcher brought a claim against John Rylands, the owner, and Jehu Horrocks, the manager of

Rylands's reservoir[8] on 4 November 1861.[9]

[edit]Judgment

[edit]Liverpool Assizes

The tort of trespass was inapplicable, because the law at the time did not class one-off events as "trespass"; an

action was instead taken under the tort of nuisance.[10] The case was first heard by Mellor J and a special jury in

September 1862 at the Liverpool Assizes;[11] a court order led to an arbitrator from the Exchequer of

Pleas being appointed in December 1864.[12] The arbitrator decided that the contractors were liable for

negligence, since they had known about the old mine shafts. Rylands, however, had no way of knowing about

the mine shafts and so was not.

[edit]Exchequer of Pleas

The case then went to the Exchequer of Pleas, where it was heard between 3 and 5 May 1865.[13] It was heard

on two points. Firstly, whether the defendants were liable for the actions of the contractors and secondly,

whether the defendants were liable for the damage regardless of their lack of negligence.[14] They decided for

the first point that the defendants were not liable, but more split on the second point. Pollock CB, Martin

B and Channell B held that the defendants were not liable, as since a negligence claim could not be brought

there was no valid case. Bramwell B, dissenting, argued that the claimant had the right to enjoy his land free of

interference from water, and that as a result the defendant was guilty of trespass and the commissioning of a

nuisance. He stated that "the general law in matters wholly independent of contract" should be that the

defendants were liable, "on the plain ground that the defendants have caused water to flow into the [claimant]'s

mines, which but for the defendant's act would not have gone there".[15]

[edit]Court of Exchequer Chamber

Fletcher appealed to the Exchequer Chamber of six judges. The prior decision was overturned in favour of the

appellant Fletcher. Blackburn J spoke on behalf of all the judges and said that:

“

Blackburn J gave the leading judgment.

We think that the true rule of law is, that the person who for his own purposes brings on his lands and collects and keeps

there anything likely to do mischief if it escapes, must keep it at his peril, and, if he does not do so, is prima

facie answerable for all the damage which is the natural consequence of its escape. He can excuse himself by shewing that

the escape was owing to the Plaintiff’s default; or perhaps, that the escape was the consequence of vis major, or the act of

God; but as nothing of this sort exists here, it is unnecessary to inquire what excuse would be sufficient. The general rule, as

above stated, seems on principle just. The person whose grass or corn is eaten down by the escaping cattle of his neighbour,

or whose mine is flooded by the water from his neighbour's reservoir, or whose cellar is invaded by the filth of his

neighbour's privy, or whose habitation is made unhealthy by the fumes and noisome vapours of his neighbour's alkali

works, is damnified without any fault of his own; and it seems but reasonable and just that the neighbour who has brought

something on his own property (which was not naturally there), harmless to others so long as it is confined to his own

property, but which he knows will be mischievous if it gets on his neighbour's, should be obliged to make good the damage

which ensues if he does not succeed in confining it to his own property. But for his act in bringing it there no mischief

could have accrued, and it seems but just that he should at his peril keep it there, so that no mischief may accrue, or answer

for the natural and anticipated consequence. And upon authority this we think is established to be the law, whether the

things so brought be beasts, or water, or filth, or stenches.[16] ”

Blackburn J's opinion relied on the liability for damages to land available through the tort of chattel trespass and

the tort of nuisance, as well as the in scienter action, injury by a domesticated animal known to have a

disposition to injure.[17] Rylands appealed.

[edit]House of Lords

The House of Lords dismissed the appeal and agreed with the determination for Fletcher.[18] Lord Cairns, in

speaking for the House of Lords, stated their agreement of the rule stated above by Justice Blackburn, but

added a further limitation on liability, which is that the land from which the escape occurs must have been

modified in a way which would be considered non-natural, unusual or inappropriate. The case was then heard

by the House of Lords on 6 and 7 July 1868, with a judgment delivered on 17 July. Oddly the court consisted of

only two judges, Lord Cairns and Lord Cranworth; Lord Colonsay failed to attend.[19] The eventual judgment

confirmed Blackburn's decision and general principle, adding a requirement that the use be "non-natural".

[20] The judgment of Lord Cairns LC was as follows.[21]

“

Lord Cairns LC fully concurred with Blackburn J

My Lords, the principles on which this case must be determined appear to me to be extremely simple. The Defendants,

treating them as the owners or occupiers of the close on which the reservoir was constructed, might lawfully have used that

close for any purpose for which it might in the ordinary course of the enjoyment of land be used; and if, in what I may term

the natural user of that land, there had been any accumulation of water, either on the surface or underground, and if, by the

operation of the laws of nature, that accumulation of water had passed off into the close occupied by the Plaintiff, the

Plaintiff could not have complained that that result had taken place. If he had desired to guard himself against it, it would

have lain upon him to have done so, by leaving, or by interposing, some barrier between his close and the close of the

Defendants in order to have prevented that operation of the laws of nature....

On the other hand if the Defendants, not stopping at the natural use of their close, had desired to use it for any purpose

which I may term a non-natural use, for the purpose of introducing into the close that which in its natural condition was not

in or upon it, for the purpose of introducing water either above or below ground in quantities and in a manner not the result

of any work or operation on or under the land, - and if in consequence of their doing so, or in consequence of any

imperfection in the mode of their doing so, the water came to escape and to pass off into the close of the Plaintiff, then it

appears to me that that which the Defendants were doing they were doing at their own peril; and, if in the course of their

doing it, the evil arose to which I have referred, the evil, namely, of the escape of the water and its passing away to the

”

close of the Plaintiff and injuring the Plaintiff, then for the consequence of that, in my opinion, the Defendants would be

liable. As the case of Smith v. Kenrick is an illustration of the first principle to which I have referred, so also the second

principle to which I have referred is well illustrated by another case in the same Court, the case of Baird v Williamson,

[22] which was also cited in the argument at the Bar.[18]

[edit]Significance

[edit]Change to the law

Early English common law had, in many instances, imposed liability on those who had caused harm regardless

of wrongful intent or negligence. Trespass was considered a remedy for all tortious wrongs, and sometimes

used as a synonym for torts generally.[23] Over the centuries, however, judges focused more on the intent and

negligence behind the actions than the nature of the actions themselves, leading to the development

of negligence and nuisance and the further development of trespass.[24] At the time of Rylands, the previous

case relied upon was Vaughan v Menlove,[25]decided in the Court of Common Pleas in 1837. The case had

almost identical facts to Rylands, but strict liability was never even considered. The case is instead thought of

as one of the best attempts of early 19th Century English judges to build up the law of negligence.[26] The

outcome of Rylands meant that judges would again impose strict liability on defendants who accumulated

dangerous things on their land without any need to prove negligence or wrongful intent. The decision won

support for bringing the law relating to private reservoirs up to standard with the law relating to public

reservoirs, which contained similar statutory provisions thanks to a pair of private Acts of Parliament passed in

1853 and 1864.[27]

[edit]Assessment

The decision in Rylands initially faced little criticism within England and Wales, although many American

scholars and judges of the time felt that judgment was a poor one. Doe CJ of the New Hampshire Supreme

Court wrote that it "put a clog upon natural and reasonably necessary uses of matter and tend to embarrass

and obstruct much of the work which it seems to be a man's duty carefully to do". The American interpretation

was based primarily on the idea that it would cause economic harm.[28] Further American criticism is based on

the idea that it is poor law. Firstly, they argue, it is not trespass, since the damage is not direct, and secondly, it

is not a nuisance, because there is no continuous action.[29][30] Glofcheski, writing in the Hong Kong Law

Journal, notes that the doctrine has not flourished... a tort imposing strict liability should be closely interpreted

and circumspectly applied".[31] It has been argued that the decision was never entirely accepted by the judiciary

as a whole, and that it is difficult to justify. This is for two reasons; firstly, it is a case of very limited applicability,

and it has been suggested that it be folded into a general principle of strict liability for "ultra-hazardous"

activities. Secondly, subsequent case law in England and Wales, particularly in Rickards v Lothian, has

undermined the "non-natural use" element by introducing a cost/benefit analysis which severely limits the

decision's usefulness.[32]

[edit]England and Wales

[edit]Developments

The party that can be sued in a Rylands claim is an owner or occupier of land, along with anyone who stores or

collects the dangerous material, as in Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd.[33] The

party suing was initially one with an interest in land, but Perry v Kendricks Transport Ltd confirmed that an

interest in land was not necessary to bring a claim.[34]Historically, personal injury claims have been allowed, as

in Hale v Jennings.[35] More recent cases, however, such as the House of Lords decision in Transco plc v

Stockport Metropolitan Borough Council,[36] have confirmed that Rylands is "a remedy for damage to land or

interests in land. It must...follow that damages for personal injuries are not recoverable under the rule".[37]

In Cambridge Water Lord Goff opined that the rule in Rylands should not further be developed, and that rather

than being an independent tort it should be instead considered a sub-tort of nuisance. Statutory provisions,

such as the Environmental Protection Act 1990, were a more modern and appropriate way of addressing

environmental problems which would previously have been covered byRylands.

Subsequently, Transco disapproved of the Australian decision in Burnie Port Authority v General Jones Pty

Ltd to absorb Rylands into the general law of negligence,[38] deciding thatRylands should continue to exist but,

as Lord Bingham said, as a "sub-species of nuisance...while insisting upon its essential nature and purpose;

and...restate it so as to achieve as much certainty and clarity as is attainable".[39] It is now a sub-tort, rather than

an independent tort, they have confirmed that it will be allowed to remain.[40]

Donal Nolan has argued that to consider Rylands as part of private nuisance is unsound. Private nuisance

requires the claimant to have an interest in land, while Rylands does not; although exceptions to this rule have

occasionally been made in private nuisance, in Hunter v Canary Wharf Ltd,[41] the House of Lords ruled that to

make exceptions would transform nuisance from a tort against land to a tort against the person, and should not

be permitted.[42] John Murphy, Professor of Common Law at the University of Manchester, agrees with Nolan,

[43] and makes the additional point that nuisance is focused on a loss of enjoyment to land, not physical damage

as Rylands is.[44] It has also been concerned that the reasonable use test, which appears in nuisance, is not

applicable to cases brought under Rylands.[45]

[edit]Brings, collects and keeps

The first requirement under Rylands is that the defendant "for his own purposes brings onto land and collects

and keeps there". In Rylands, this was the keeping of water in a reservoir; other cases in England and Wales

have illustrated what sort of material is considered. In British Celanese v AH Hunt,[46] the accumulation was of

metal foil strips. "for his own purpose" is not understood to be "for his benefit", although that was what

Blackburn was referring to at the time; in Smeaton v Ilford Corp,[47] Rylands was held to apply to a local

authority accumulating sewage on its land, although there was no benefit to the local authority from doing this.

[20]

[edit]Mischief and escape

The next element of Rylands is that the thing be something "likely to do mischief if it escapes". Before Transco

plc v Stockport Metropolitan Borough Council this did not have to be a dangerous item (see below); the risk

was instead in its behaviour if it escapes. In Rylands the "thing" was water. Other examples are fire, as

in Jones v Festiniog Railway,[48] gas, as in Batchellor v Tunbridge Wells Gas Co,[49] fumes, as in West v Bristol

Tramways Co,[50] and electricity, as in Hillier v Air Ministry.[51] The extent of the "thing"'s accumulation can also

be considered, as inMason v Levy,[52] where it was not just the type of thing kept but the sheer amount which

created the danger. It is essential for a Rylands claim that there be an escape of a dangerous thing "from a

place where the defendant has occupation of or control over land to a place which is outside his occupation or

control". In Read v J Lyons & Co Ltd,[53] an explosion in a munitions factory killed an inspector on the

property. Rylands was held not to apply, because there was no escape. The dangerous thing that escapes

does not always have to be the thing which was accumulated, but there must be a causal link. In Miles v Forest

Rock Granite Co (Leicestershire) Ltd,[54] explosives stored on the defendant's land led to the escape of rocks in

a blast, and the defendant was found liable.[55]

In Transco plc v Stockport Metropolitan Borough Council, Lord Bingham stated obiter that "I do not think the

mischief or danger test should be at all easily satisfied. It must be shown that the defendant has done

something which he recognised, or judged by the standards appropriate at the relevant place and time, he

ought reasonably to have recognised, as giving rise to an exceptionally high risk of danger or mischief if there

should be an escape, however unlikely an escape may have been thought to be."[56]

[edit]Non-natural use

The requirement of "non-natural use", which was created when the case went to the House of Lords, was

described by Lord Moulton, in Rickards v Lothian,[57] as "some special use bringing with it increased danger to

others". Because the idea of something being "non-natural" is a subjective one, the interpretation of this

principle has varied over the years. In Musgrove v Pandelis, a carfilled with petrol was considered "non-

natural", while in Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd,[33] so was the operation of a

munitions factory during war-time.[58] There is no single concrete test to define what is "non-natural", for reasons

given by Lord Bingham in Transco plc v Stockport Metropolitan Borough Council;[36] "[non-natural use] is not a

test to be inflexibly applied. A use may be extraordinary and unusual at one time or in one place but not so at

another time or in another place...I also doubt whether a test of reasonable user is helpful, since a user may

well by quite out of the ordinary but not unreasonable".[59]

[edit]Defences

There are several defences in England and Wales to a claim under Rylands v Fletcher; act of an unknown third

party, contributory negligence, consent and statutory authority. An act of an unknown third party will absolve

the defendant of liability, as in Perry v Kendricks Transport Ltd.[35] In Northwestern Utilities Ltd v London

Guarantee and Accident Co Ltd,[60] the principle was established that if a claimant knows of the unknown third

party and their actions, the defendant is additionally likely to be able to deny liability. As Rylands requires strict

liability, any contributory negligence voids most of the claim. Initially it was sufficient to offset the case itself;

with the Law Reform (Contributory Negligence) Act 1945, courts instead apportion damages, taking into

account how much of the harm was contributed by the claimant. Nevertheless, contributory negligence is still a

viable partial defence to a Rylands claim.[61] Other valid defences are where the claimant has consented,

expressly or impliedly, to the accumulation of the "thing", and where there is statutory authority for the

accumulation.[62]

[edit]Scotland

The principles of Rylands v Fletcher were initially applied in Scots law, first in the case of Mackintosh v

Mackintosh,[63] where a fire spreading from the defendant's land to the claimant's land caused property

damage.[64] Scots lawyers and judges applied Rylands differently to their English counterparts, however. While

the rule is interpreted in England and Wales as being distinct from negligence and the rules of duty of care and

liability applied there, the principle in Scotland was that "negligence is still the ground of liability. The only

difference is that in such cases the proprietor is doing something upon his property which is in its nature

dangerous and not necessary (or usual?) in the ordinary management of the particular kind of property, and he

is therefore bound to observe a higher degree of diligence to prevent injury to his neighbour".[65] The use

of Rylands in Scots law, which was started in Mackintosh, finally came to an end in RHM Bakeries v

Strathclyde Regional Council.[66] Lord Fraser, as part of his judgment, stated that the idea of strict liability that

was brought into play by Rylands was not a part of Scots law, and the idea that it ever had been valid was "a

heresy that ought to be extirpated".[3]

[edit]United States

Within the United States, there are many situations in which strict liability is applied to actions, and Rylands is

commonly cited as the origin of that rule;[67] it was first applied in Ball v. Nye,[68] by the Supreme Court of

Massachusetts. The Supreme Court of Minnesota also adopted it in Cahill v. Eastman,[69] while the Supreme

Courts of New York, New Hampshire and New Jersey all rejected the principle, in Losee v. Buchanan,[70] Brown

v. Collins,[71] and Marshall v. Welwood respectively.[72][73] The Supreme Court of New Jersey, however,

reversed Welwood in 1983 in DEP v. Ventron Corp.[74] Many courts in the United States have attempted to

use Rylands to justify absolute liability, which it was never intended to do; while absolute liability is where no

defence is applicable, in Rylands itself Lord Cairns accepted that there were some situations where the case

should not be applied.[75]

[edit]Australia

In Australia, the principles of Rylands v Fletcher were "killed off" by the High Court of Australia in Burnie Port

Authority v General Jones Pty Ltd.[32][76] The High Court's view was that the Rylandsprinciples "should now been

seen ... as absorbed by the principles of ordinary negligence, and not as an independent principle of strict

liability".[77] Contrasting this, the principles have escaped destruction in Hong Kong, where the courts are yet to

follow the examples set by Australia and England and Wales, and Rylands remains an independent tort.[78]

[edit]See also

English tort law

US tort law

Strict liability

Lake Peigneur