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Module 7: Law of tortsThe theoretical foundations for actions in tort and contract are quite separate. Long before the imperial march of modern negligence law began, contracts of service carried an implied term that they would be performed with reasonable care and skill. Persons who give consideration for the provision of services expect that those services will be provided with due care and skill. Reliance on an implied term giving effect to that expectation should not be defeated by the recognition of a parallel and concurrent obligation under the law of negligence. The evolution of the law of negligence has broadened the responsibility of professional persons and requires them to take reasonable care and skill even in situations where a contractual relationship cannot be established. But given the differing requirements and advantages of each cause of action, there is no justification in recognising the tortious duty to the exclusion of the contractual duty.

(Astley v Austrust Ltd [1999] HCA 6 per Gleeson CJ, McHugh, Gummow & Hayne JJ at para. 48)

Introduction

This module provides students with a brief introductory overview of liability in tort law, as imposed by the law of obligations. Torts are one of four interactive categories of civil law obligations, i.e. the common law (excluding equity and trusts): contract, tort, unjust enrichment and other causative events. Tort law has a distinctive bilateral structure and court litigation process: bilateral primary legal obligations which arise by unilateral operation of law, the violation of which by the tortfeasor generates new secondary obligations of reparation (the duty to repair, or damages) in favour of the right-holder, as crystallised by court enforcement. As an analytical framework, it’s useful to adopt the explanatory theory or view of ‘the conceptual structure of tort practice’ as encapsulating corrective justice: a person being held outcome-responsible for certain adverse transactional outcomes they inflict, i.e. wrongs to privileged legal rights of others. There is in fact a whole array of torts including: negligence, deceit, trespass, conversion and detinue, nuisance, strict liability and defamation: see Turner and Trone (2013, Ch. 28). Negligence and deceit were considered earlier in Module 3. Although the scope and operation of tort law has proved especially troublesome, there is at least broad agreement on what this branch of the law of obligations comprises (Baker et al. 2002, p. 1–1):

A tort can be defined as an act or omission by the defendant, constituting an infringement of an interest of the plaintiff recognised by law as being worthy of protection against an infringement of that sort, created by an act or omission of that sort, and giving rise to a right of civil action for unliquidated damages.

As noted in Module 2 and the above High Court judgment, actions in tort and contract—though frequently relating to the one action, e.g., in commerce—are legally distinct. In early UK cases such as Groom v Crocker [1939] 1 KB 194 where there was a liability in contract, this was thought to prevent liability in tort as well. But later Anglo-Australasian cases have unequivocally established that liability is generally concurrent; i.e., that an aggrieved contractual party has a free autonomous choice of contractual or tortious remedies: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145; Astley v AusTrust Ltd [1999] HCA 6. Though issues such as what effect contractual/tort exclusion clauses have, require consideration. In Australia, the proliferation and growing costs of negligence actions (and insurance) over recent decades—especially personal injury claims—finally prompted concerted legislative intervention. That followed a 2002 review chaired by Justice David Ipp which recommended radical changes to available common law negligence actions.

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Objectives

On completion of this module, you should be able to:

• provide a short account of the origins of tort law—and negligence in particular—and its interaction with contract law

• with reference to the cases of Donoghue v Stevenson and Wagon Mound Nos. 1–2, outline how it is that leeways of choice underpin the dynamics of common growth, and why the hazard of ‘illusory reference’ seemed to permit ‘no limit to judgment’ in the evolution of the proximity test in negligence

• detail the major types of tort imposed by the law of obligations in relation to recognised property, contractual and statutory rights

• set out the components of an actionable tort, e.g., negligent misstatement and apply that formula to standard fact complexes

• explain why statutory reform of tort law occurred in 2002–2003, outline the key operative provisions of a representative statute, e.g., the Civil Liability Act 2003 (Qld) and show how it modifies the rights, obligations and liabilities of parties in an array of standardised fact complexes.

Readings

Textbooks Turner & Trone 2013 Ch. 28

Davenport & Parker 2012 Ch. 28

History and recent dynamics of negligence

As students will hopefully recall from Module two, there is—as Atiyah (1986, p. 10) points out—within the broad law of obligations a fundamental distinction between, ‘obligations which are voluntarily assumed, and obligations which are imposed by law. The former constitute the law of contract, the latter fall within the purview of the law of tort’. To recap, tort is defined by Baker et al. (2002, p. 1–1) as, ‘an act or omission by the defendant, constituting an infringement or an interest of the plaintiff … giving rise to a right of civil action for unliquidated damages.’ Whilst the generalised components of an action in tort for negligence comprise: the plaintiff owing the defendant a duty of care, that duty being subsequently breached giving rise to foreseeable losses suffered by the plaintiff that aren’t too remote from the breach (see Turner and Trone 2013, p. 735).

The relationship between these two interrelated branches of the law of obligations has nonetheless been troublesome. For example, liability in negligence—the most problematic area—across a whole array of consensual commercial and non-consensual transactions, has vastly increased in the last 100 years. Chief Justice Spigelman of the NSW Supreme Court addressed this issue in a 2002 conference paper, Negligence: The Last Outpost of the Welfare State. Whilst, writing extra-judicially, Justice David Ipp (2003, p. 1) observed that:

Over the last 100 years there have been vast changes in the law of negligence. The law of negligence closely reflects the social attitudes of people and as these change so, following some distance behind, does the law of negligence. After all, as Lord Atkin observed in Donoghue v Stevenson, the law of negligence is based on a general sentiment of public wrongdoing. The pendulum has swung from a judiciary that, at the turn of the 19th century, closely identified with defendants such as landlords, property owners and employer to one that, at the end of the 20th century, strongly sympathised with the claims of plaintiffs, broadly.

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In the following extract Professor Atiyah (1986, p. 41) insightfully draws attention to the intertwined modern history of contract and tort law:

The modern law of negligence, is in many respects, an offshoot of nineteenth century contract law. Historically, the tort of negligence which dominates modern tort law grew almost entirely out of contractual-type arrangements. Personal injury actions brought against occupiers of premises, against employers, against railway companies were the forerunners of the modern running-down case. The road accident between strangers was not the typical tort-action of the last century. And even today it remains true that nearly all tort actions arise in the course of voluntary actions …. It is of course that sharp distinctions drawn by the law between tortious and contractual liability have over the years, led to various accretions of positive law. In particular, contractual liability is often stricter than tortious liability. The seller of defective goods is liable even without proof of negligence for any injury cause by the goods to someone who can claim that he has contracted to buy them.

In recent cases, the High Court has been re-stressing the ‘autonomy of the individual’ and that in commercial transacting, contract law—and not tort—should take priority in fixing the scope of rights and duties between parties since it offers them ample opportunities to pursue and protect their commercial interests: Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16. Earlier, in Perre v Apand Pty Ltd [1999] HCA 36, McHugh J (at para. 115) said that:

As long as a person is legitimately protecting or pursuing his or her social or business interests, the common law will not require that person to be concerned with the effect of his or her conduct on the economic interests of other persons …And that is so even when that person knows that his or her actions will cause loss to a specific individual. Thus, a consumer owes no duty to a trader not to cause loss to that person by withdrawing custom.

In Woolcock, first the High Court emphatically rejected an extension of the ratio in Bryan v Maloney (1995) 182 CLR 609 concerning residential houses, to commercial buildings. Then secondly, the judges—Kirby J dissenting—rejected a claim in tort by the subsequent purchasers of a commercial building with faulty foundations which they alleged was the fault of the original consulting engineers who designed them (even though the original owner rejected their advice to have more robust foundations). McHugh J said (at para. 96):

The first owners and subsequent purchasers of commercial buildings are usually sophisticated and wealthy investors who are advised by competent solicitors, accountants, architects and valuers. In the absence of evidence, this Court must assume that the first owner of commercial premises is able to bargain for contractual remedies against the builder. It must assume also assume that a subsequent purchaser is able to bargain for contractual remedies from the vendor of the premises.

Justice McHugh neatly demonstrated how initial and subsequent building owners could easily protect their financial interests by inclusion of the appropriate terms including warranties into simple contracts or construction contracts made under deed.

First, subject to express terms, an ordinary building construction contract contains implied terms that the work will be properly carried out with suitable materials, and similar contracts can be entered into with other parties supplying design work etc. And to get around the relevant limitation period (subject to statutory override) the contracts can be made under deed. Secondly, where sub-contractors are involved, the ‘the prudent principal’ should enter into collateral contracts with them that include appropriate warranties. In any event, under the standard Australian construction contract (AS4000–1997) the builder has a duty to supervise subcontractors and is liable for their acts, defaults and omissions. Thirdly, on the subsequent sale of the building, the purchaser can insist the simple contract or deed under seal contains warranties about the building’s condition and lack of hidden or latent defects. In this way, the interests of the initial and later owners can be easily protected under standard contract law provisions, and the hazards of relying on tort law remedies—often decades after construction—can be largely avoided.

We can conclude from Woolcock that in an Australian commercial setting where parties are autonomous and quite able to look after their own interests, the courts will expect them to do so and will be reluctant to bend or extend existing tort law remedies—negligence especially—to assist them. In Perre v Apand Pty Ltd [1999] HCA 36, the High Court was equally insistent that except for a narrow range of exceptions there was no liability for foreseeable pure economic loss.

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In summary, regarding tort-contract interaction, first, by operation of law there’s an implied term of reasonable care in a contract of professional services for which the promisee gives consideration. Thus as Gleeson CJ et al. usefully observed in Astley v AusTrust Ltd at paras. 47–48 (see Turner and Trone 2013, p.734 on this point):

Persons who give consideration for the provision of services expect that those services will be provided with due care and skill. Reliance on an implied term giving effect to that expectation should not be defeated by the recognition of a parallel and concurrent obligation under the law of negligence.

Secondly, the starting point in examining the prospective scope of any duty of care in tort and issues of negligence is, the terms and scope of any relevant contract between the parties: Voli v Inglewood Shire Council [1963] HCA 15; Hawklins v Clayton [1988] HCA 15; Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16.

Thirdly, prospective liability in Australia, independent of contract, via the duty of care in tort law for foreseeable property, financial and/or purely economic loss (besides trespass and private nuisance) is now subject to an application of increasingly strict rules following Perre v Apart Pty Ltd [1999] HCA 36 as applied in e.g., Johnson Tiles v Esso Australia [2003] VSC 27 and enactment in 2002/3 of parallel state legislation e.g. the Civil Liability Act 2003 (Qld).

Fourthly, though much criticised and now supplemented by (i) the more detailed, rigorous five part threshold rules articulated in Perre v Apand Pty Ltd [1999] HCA 36 and (ii) comments in Woolcock Street Investments [2004] HCA 16 restressing the ‘autonomy of the individual’, the Donoghue v Stevenson [1932] AC 632 neighbour principle can still govern physical/causal proximity based negligence liability for omissions and related financial losses (akin to ‘pure economic loss’). In this manner, the Donoghue v Stevenson duty of care or neighbour principle was applied by Gleeson CJ & Gummow J in Punteriero & Anor v WAMC [1999] HCA 45 to foreseeable damage to property (a potato crop damaged by chemicals in water supplied under statute, via contract) and, ‘was none the worse for it’ (p.11). While in Johnson Tiles v Esso Australia [2003] VSC 27 at p.130, Gillard J said that:

In my opinion, whether or not Esso owe a duty of care to any party who suffered property damage, depends upon the application of the Atkinian formula. This involves the questions of reasonable forseeability of injury and proximity. The test of reasonable foreseeability concentrates on the knowledge that the defendant had or ought to have had of the victim and the potential for harm.

Fifthly, financial loss sustained resultant on physically proximate damage to property isn’t a strictly pure economic loss, with liability capable of being fixed under the same broad Atkinian formula. And sixthly, while property-related liability may also arise under the torts of private nuisance and trespass as canvassed below, the modern reconfigured action in negligence has somewhat overshadowed these and replaced the now obsolete strict liability Rylands v Fletcher (1866) based action for unnatural use of land occasioning loss: Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520.

Negligence: leeways of choice or no limits to judgment?

Since our primary concern in this Module is the tort of negligence, it is a very useful exercise in reliance upon Professor Julius Stone’s (1985) analytical framework and approach to case development, to see how the tort of negligence expanded through the ‘leeways of choice’ that judges have in their application and restatement of ratio decidendi—the binding part of precedent.

Modern negligence law largely has its origins in Lord Atkins judgment in Donoghue v Stevenson [1932] AC 632 in which he outlined the neighbour or proximity test. However, this test is stated in circular, question begging terms—the question being reframed rather than answered—which Professor Stone terms a category of illusory reference and defines in these terms:

A legal proposition apparently available must be recognised as having an ‘illusory reference’, as giving no intellectual guidance and therefore setting no limit to judgment, when either, (1) it consists of a distinction without a difference, or other category of meaningless reference, or (2) it consists of a category of circular reference. (Stone 1986, p. 74)

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He clearly demonstrates this in an analysis of the Donoghue case:

Question: To whom do I owe a duty to take care? Answer: To my neighbour. Question: Who then are my neighbours? Answer: They ‘who are so closely and directly affected by my act or omission that I ought to have them in contemplation’ when I act or fail to act … The argument when we sort it out nevertheless includes a circularity. This is because after the sense of increased understanding has been stirred by the ‘neighbour’ symbol, the question still remains to be answered: ‘who then is my neighbour’ … Yet [when addressed] does this answer really tell us more than that we owe a duty to take care when we ‘ought’ to take care …. It must here be added that this circular category is merely one of a complex network of illusory categories which enmesh the contemporary law of negligence. The lawyer’s resort to circular categories is but a manifestation of the tendency of us all to cover over with words our discomfort with ‘too hard’ questions. (p. 66)

Secondly, in the process of the broadly stated neighbour test in Donoghue—a key example of an illusory reference legal test—being applied, it expanded so that various competing versions of the ‘proximity test’ developed. For example, the ‘duty situation’ test: ‘imposed a duty only if the defendant also stood in a legal relation to the plaintiff, such as trustee, or lessor, or custodian, or some other relation …’ (p. 64). And yet a third version was adopted in the case of Dorset Yacht [1970] AC 1004. The duty situation test was that, ‘even where no such ‘duty situation’ has yet been held to arise, it is still open to the instant court to determine, as a matter of policy, whether circumstances falling within Lord Atkins’s ‘neighbour’ (or ‘proximity’) test give rise to a duty’ (p. 64).

In this way, Australian courts have over the years developed and debated upon various versions of the proximity test which as Baker et al. (2002, pp. 8–5) note, entails either; physical, circumstantial or causal proximity or a combination of these and is a question of law to be decided three bases—the facts of the case, what is fair and reasonable, and policy considerations.

Its scope—consistent with Stone’s account of the dynamics of common law—was revisited in key cases including Wagon Mound No 1 [1961] 1 All ER 404 and Wagon Mound No 2 [1966] 2 All ER 709—two cases originating from New South Wales, heard on appeal by the Privy Council. They concerned spillage of oil into Sydney harbour by engineers from a ship, the Wagon Mound, which due to lack of attention over 2–3 days travelled some distance to Mort’s dock. Sparks from welding work on the docks ignited the oil and which then damaged the dock and a ship. The first case concerned an action in negligence by the dock owner and the second, by the owners of a ship undergoing repairs at the wharf, against the party responsible for the oil spill—the Wagon Mound’s owners. As Stone explains, the plaintiffs in Wagon Mound No 1 failed because on appeal the Privy Council held that it wasn’t foreseeable—it was such a remote possibility—that oil on the surface of sea water would ignite as it in fact did. But then in the following case—involving a review of existing negligence law principles—the ratio was stated in terms of both liability and remoteness. There was agreement in both these cases on the following material facts:

1. that Mort’s Dock, before they engaged in welding operations, had sought advice and were advised that it was safe to proceed

2. that there was no certainty how the oil was set alight—possibly by hot metal falling on floating waste material

3. that clearly the defendant’s (the Wagon Mound’s) engineers were careless in allowing the major oil spillage of oil over the water

4. that the oil thus spilled was in fact set alight and that the damage to the plaintiff’s dock directly resulted from this fire.

(Stone 1985, p. 141)

Also, given agreement that there was a duty and that it was breached, the deciding third legal issue test was one of remoteness: was the fire a remote occurrence or a direct consequence? If it applied Re Polemis [1921] 3 KB 560, there was liability for all the direct consequences of a negligent act. But in the Wagon Mound No 1, the Privy Council adopted an earlier stricter competing version of the Re Polemis directness rule of foreseeability of the damage: ‘what was necessary in order to produce liability under it for the particular damage was not only the foreseeability of any damage to the plaintiff, but the foreseeability of the particular kind (and also degree) of damage to the plaintiff …’ (p. 142).

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But then in Wagon Mound No 2, the Privy Council took a different approach—based on Bolton v Stone [1951] 1 All ER 1078—to the foreseeability/or remoteness issue, apparently consistent with Re Polemis. An action in negligence required consideration of these elements:

1. the degree of the culpability [wrongfulness, illegality] inherent in the defendant’s activity

2. the gravity of damage which may result from it

3. the proximity (or statistical probability) of the risk that such damage will occur [in other words, reasonable foreseeability]

4. the cost and difficulty of measures which would be required to eliminate or forestall the risk.

What a reasonable man should foresee depended, therefore, they said, on the cumulative interaction and balance between all these elements. (p. 144)

Incidentally, in the 2002–03 reform of tort law, the first element—criminal behaviour—of a claimant in tort can now prevent civil liability from arising in relation to the breach of duty: see, e.g., s. 45 Civil Liability Act 2003 (Qld).

So, on an application of these principles since the original spill was unlawful and was then left unattended for several days, the defendants should have considered the seriousness of damage if a fire broke out. And even though that was a statistically remote possibility, it was nonetheless foreseeable. In which case, the defendant was liable for damage the oil fire did to another ship—resulting from an illegal spill which unattended for some time threw up the distinct though remote chance of it catching alight and engulfing nearby property. The most risk adverse response by the Mort Dock owners would have been to suspend work until the oil spillage was contained and then to have sued the Wagon Mound’s owners for pure economic loss.

It is not hard to see then how competing versions of the elements of the Wagon Mound No 2 four part verbal formula might then develop—ignoring for now the alternate duty situation test—and especially, how difficult it would be for the courts to thereafter consistently apply the four variably interacting elements of the negligence test. Courts then would have numerous leeways of choice in applying the four part test and especially the notion of ‘reasonable foreseeability’ (proximity) and which Stone therefore describes as another example of illusionary reference with no limit to judgment. The problems with and indeterminate nature of the proximity test were recently acknowledged in a unanimous judgment by the High Court in Sullivan v Moody [2001] HCA 59, at para. 48:

As Professor Fleming said [21] ‘no one has ever succeeded in capturing in any precise formula’ a comprehensive test for determining whether there exists, between two parties, a relationship sufficiently proximate to give rise to a duty of care of the kind necessary for actionable negligence. The formula is not ‘proximity’. Notwithstanding the centrality of that concept, for more than a century, in this area of discourse, and despite some later decisions in this Court which emphasised that centrality [22], it gives little practical guidance in determining whether a duty of care exists in cases that are not analogous to cases in which a duty has been established [23]. It expresses the nature of what is in issue, and in that respect gives focus to the inquiry, but as an explanation of a process of reasoning leading to a conclusion its utility is limited.

So what is replacing proximity as a not so bright line test? The courts seem to be using a variant of the Wagon Mound No 2 four-part interactive formula. For example, in Perre v Apand Pty Ltd [1999] HCA 36—a case concerning pure economic loss—McHugh J set out five principles ‘relevant to in determining whether a duty existed’.

• reasonable foreseeability or loss

• indeterminacy of liability

• autonomy of the individual

• vulnerability to risk and

• knowledge of the risk and its magnitude.

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Statutory reform measures in 2002–2003 as considered below, broadly adopted a similar formula: see s. 9. Civil Liability Act 2003 (Qld). Justice McHugh later applied that test in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16, a case discussed above concerning alleged professional negligence where there was no direct contractual between the firm of engineers and subsequent owner of a commercial building, i.e., a foreseeable third party. According to McHugh J, ‘where a contract exists, however, the concepts of assumption of responsibility and reliance may create a duty of care in tort as well as obligations in contract’ (at para. 112).

Breaches of property, contractual or statutory rights

Under the law of obligations, the common law—as amended, supplemented or negatived by statute—imposes minimum standards of care and liability on individuals in many situations that have the common feature of what economists would describe as imposing ‘negative externalities’ on the property and contract rights of others. The main individual common law torts (besides statutory torts too) ignoring the personal torts of assault, battery and false imprisonments, are: trespass to land, goods or personalty, fraud or deceit, and negligent acts or mis-statements. Remedies are, of course, important where a tort has occurred. There are two main remedies—actions for damages and/or an injunction, to stop ongoing wrongs. In tort, damages are awarded to compensate the wronged party for the injury sustained. Whilst a prohibitory injunction is a court order stopping the defendant’s tortious acts; and a mandatory injunction orders the defendant to positively act so as to prevent a continuation of the tort (Baker et al. 2002, pp. 22–23).

1. Trespass against real property, goods and personalty

It is an error to think that the three actions of trespass, nuisance and negligence in relation to real property coalesce into the universal tort of negligence. They remain distinct. At common law, a trespass to land is a physical act done directly to the plaintiff’s land rather than indirect consequential damage: Read v Lyons & Co Ltd [1946] 2 All ER 471; Southport Corporation v Esso Petroleum Co Ltd & Ors [1954] 2 All ER 561. The essence of the tort of nuisance is, ‘a tort directed against the plaintiff’s enjoyment of his rights over land [real property rights] an action of private nuisance will usually be brought by the person in actual possession of the land affected, either as the freeholder or tenant of the land in question, or even as a licensee with exclusive possession’: Hunter v Canary Wharf Ltd [1997] 2 All ER 426, per Lord Goff at p. 435. Real property rights nuisance is divisible into public and private nuisance—the latter being of three kinds: ‘(1) nuisance by encroachment on a neighbour’s land; (2) nuisance by direct physical injury to a neighbour’s land; and (3) nuisance by interference with a neighbour’s quiet enjoyment of his land’, per Lord Lloyd in Canary Wharf at p. 441. However, as Lord Goff noted in the Canary Wharf case, many types of adverse land-use do not give rise to private nuisance. These include the right of a person to build on their land (subject to planning controls, and/or restrictive covenants or easements) in such a way that interferes with neighbours’ enjoyment of their land by: spoiling their view; restricting the flow of air; taking light away from land/buildings; causing general electrical interference or television reception interference especially in this era when cable and satellite television are available in urban areas.

1a From strict liability to liability in negligence for the ‘unnatural use’ of real property: Rylands v Fletcher vs Burnie Port Authority

Rylands v Fletcher (1866) LR 1 Ex 265 imposed what was regarded as ‘strict liability’ (i.e., not requiring negligence) in tort for the ‘unnatural’ use of land. The application of this tort remedy expanded thereafter, proving very useful, for example, against local and state government authorities in their management of publicly accessible land. However, the combination of recent cases in the UK (Cambridge Water Company Ltd v Eastern Counties Leather plc [1994] 1 All ER 53) and Australia (Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520) has seen the proposition of strict liability for which Rylands v Fletcher was supposedly authoritative, drastically reinterpreted to generally require an element of fault, i.e., negligence. In Burnie Port Authority, the High Court imposed a flexible standard of care on activities—the more dangerous they were, the higher the standard required and which in the case of an ultra-hazardous undertaking, could approximate strict liability:

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… it should now be seen for the purposes of the common law of this country as absorbed by the principles of ordinary negligence. Under those principles, a person who takes advantage of his or her control of premises to introduce a dangerous substance, or carry on a dangerous activity, or to allow another to do one of those things, owes a duty of reasonable care to avoid a reasonably foreseeable risk or injury to the person or property of another. (pp. 556–557)

In a similar manner, tortious liability arises from the wrongful interference with, possession or unauthorised dealing (conversion) in relation to chattels personal—being a chose in possession—held by another person or legal entity. Similar wrongful dealing with or financial injury caused to intangible personal property, i.e., choses in action is also actionable in tort. And since many assignable property-type rights arise under statute nowadays, unlawful interference with those rights comprises an actionable tort as well. For example in Van Son v Forestry Commission of New South Wales (1995) LGERA 108, the defendant was liable for breaching the statute and common law-based riparian rights of Ms Van Son which she relied upon to take water for her household use.

2. Fraud or deceit: wilful misrepresentation

This type of tort was examined in Module 4, since where it occurs in relation to the terms of a contract it deprives it of properly informed mutual consent or consensus ad idem. As Atiyah (1986, p. 275) observes, ‘the law relating to misrepresentation occupies a hazy and undefined area generally thought to lie along the boundaries of tort and contract’. There are—besides statutory remedies—six common law legal remedies for misrepresentation (excluding innocent misrepresentation—actionable under the Competition and Consumer Act 2010 (Cth), ‘the CCA 2010’):

• the action for deceit

• the action for damages for negligent misrepresentation

• defence to an action for breach of contract

• rescission of a contract

• damages for breach of warranty

• estoppel.

The first two require proof of fraud or negligence, while 3–5 don’t, imposing strict liability and in many cases, estoppel won’t require proof of fraud or negligence (Atyiah 1986, pp. 316–319).

A fraudulent misrepresentation is a false representation made by a person who at the time of making it had no honest belief in its truth. If the representor does believe that his representation is true, no action for fraud can be maintained, even if the representor was negligent in holding that belief: Derry v Peek (1889) 14 App Cas 337 (HL). Depending on whether the fraudulent misrepresentation is a term of the contract, the innocent may rescind the contract and obtain damages in tort or pursue the standard contractual remedies for breach of that term. Whilst the Competition and Consumer Act 2010 (Cth) now imposes stricter standards of commercial conduct and liability for failure to comply with those standards.

In tort, damages, including consequential losses will be awarded to restore the injured party to the status quo ex ante: the position they would have been in had the tort not occurred. Fraud can be difficult and expensive to prove. However it remains not uncommon in commerce and an unnecessary impost on honest business. The Italian multinational Parmalat’s shaky financial trading position was finally brought undone by the discovery that a letter guaranteeing that it had over UD$ 4 billion in a US Bank account, was a fraud.

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3. Negligent misstatement

For a detailed discussion of this major tort, see Turner and Trone (2013) from para. 28.260.

Since Hedley Bryne v Heller & Partners Ltd [1964] AC 465, this has been a major growth area of tort law since it addresses the issue of professional competence in relation to the creation, generation and dissemination of information—gratuitously to a third party or directly—a core activity of most professional businesses. In other words damages arising by way of pure economic loss for careless words. In Hedley, Bryne an advertising agency inquired from the bankers of its client Easipower, as to its creditworthiness. The Bank replied somewhat cryptically as follows—and with a disclaimer of responsibility. Unfortunately its advice was ill-researched and Hedley lost £17,000, as a result of which it sued the Bank.

CONFIDENTIAL For your private use and without responsibility on the part of this bank or its officials.

Dear Sir,

In reply to your inquiring letter of 7th instant we beg to advise: Re Easipower Ltd. Respectably constituted company, considered good for its ordinary business engagements. Your figures are larger than we are accustomed to see. Yours faithfully, Heller & Partners Ltd.

In Hedley Bryne, Lord Reid offered the following rationale for imposing liability for statements even made gratuitously to a party:

A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.

Thus the Bank was held to be legally liable for its poorly considered albeit gratutious advice, and but for its express exclusion of liability in tort (there was no contract) would have been ordered to pay damages to Hedley Bryne.

The level of care to be adhered to by professionals—in undertaking actions governed by contract, tort, statute or otherwise—is now defined in section 22 of the CLA 2003 with reference to the standard of ‘competent professional practice’.

4. Economic/business torts: inducement, intimidation and conspiracy

This is a fairly loose term covering a variable range of actionable torts. The golden thread here is, arguably, that in a fairly limited set of circumstances, the law imposes liability for damage caused by intentional interference or meddlesome behaviour in relation to the lawful business or other activities of a person or entity, or their proprietorial interests: Northern Territory v Mengel (1995) 129 ALR 1. It also extends beyond ‘property rights’ strictly speaking—being rights in rem—to rights under contract—rights in personam. Although the matter has excited some controversy, the Rights of A to have B perform a contract, whilst a bare right in rem between them, is considered a quasi-property right if unlawfully interfered with by a third party, C and therefore actionable as a tort: Lumley v Gye (1853) 118 ER 749; Attorney General for NSW v Perpetual Trustee Co Ltd (1952) 85 CLR 237; Zhu v The Treasurer of the State of NSW [2004] HCA 56.

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This collection of torts has been extensively relied upon by employers against trade unions in industrial disputes and boycotts: e.g., Taff Vale Railway Co. v Amalgamated Society of Railway Servants (1901) AC 426; .[1991] 1 VR 637. As Baker et al. (2002, p.19–2) explain, there are three types of circumstances where an action in tort for economic loss is possible:

• cases where the defendant is dishonest or acting out of an improper motive—these are the torts of deceit, injurious falsehood, and conspiracy by the use of unlawful means

• cases where the defendant has inflicted loss through the use of unlawful means—these are the torts of intimidation, use of unlawful means and conspiracy to use unlawful means

• cases of the wilful violation of a right—the Lumley v Gye tort of inducement of a breach of contract, or the appropriation of an intellectual property right such as the tort of passing off.

In Lumley v Gye (1853) 118 ER, a rival theatre owner was held liable in damages for persuading—inducing—an opera singer Joanna Wagner to breach her contract to perform at the plaintiff’s theatre. The basis of this action is that, as Isaacs J said in Short v City Bank of Sydney (1912) 15 CLR 148 at 160:

the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant did not know of the existence of the contract, he could not induce a breach; if he reasonably believed it did not require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said to knowingly procure its breach. (cited in Speedworx Pty Ltd v Bunbury Car Club (Inc) & Ors [2005] WASC 16, per Master Newmes at 4.)

Tszyu v Fightvision Pty Ltd & Anor [1999] NSWCA 323 concerned a TV company inducing the boxer Kostya Tszyu to breach an exclusive three year worldwide promotional contract (with two year extension option) he had with William Mordey. The NSW Court of Appeal in effect held the TV firm SkyChannel liable for $7 million in damages to Mordey for having induced Tszyu to breach his binding contract with Mordey.

The tort of unlawful interference with contractual relations was also successfully relied upon in the more complicated case of Zhu v The Treasurer of the State of NSW [2004] HCA 56. In March 1999, in the lead-up to the Sydney Olympics, Peter Zhu, a Chinese migrant and Australian citizen obtained an agreement with TOC Management Services Pty Ltd to sell memberships in an Olympic Club to residents of China. Then in November, the NSW Government’s Olympic entity, SOCOG, persuaded TOC to terminate its contract with Zhu on the alleged grounds he was ‘a loose cannon’ and was making unauthorised use of its Olympic logos and symbols. They apparently then had the NSW Police arrest him. He was held in NSW Police custody for 12 hours.

The High Court held on appeal that SOCOG has no statutory rights, ‘superior’ rights under common law or other justification to meddle or interfere with the TOC-Zhu contract and reinstated the orders of the original trial judge Bergin J in which she had awarded judgment against SOCOG for $4,234,319 including $95,000 in aggravated damages relating to his wrongful arrest, and $200,000 in exemplary damages due to SOCOG’s, ‘high-handed and reprehensible behaviour in relation to all three interferences’ (per Gleeson et al. at para. 4). SOCOG was also strongly criticised for having refused to deal with Zhu in good faith and having wasted as a result 20 days of judicial time in the original hearing, besides its appeal to the NSW Court of Appeal.

Recent statutory reform

As noted in the Introduction, following the 2002 review chaired by Justice David Ipp that recommended reform of available common law negligence actions, concerted legislative action was taken across Australia, the Queensland Government’s response in 2003 being representative: Civil Liability Act 2003 (Qld)—‘CLA 2003’. See Turner (2011, para. 28.80) for an account of these important changes to common law principles. While especially aimed at curbing personal injury claims, the CLA 2003 has a much wider operation: see Turner and Trone (2013, para. 28.80).

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The CLA 2003 binds all persons including the Crown and governs standards of care in relation to contract, under statute and tort as well. It doesn’t apply to a specified list of statutory regulated work-related physical injuries, or create any causes of action or codify the law, override any other relevant statutory provisions other than in the area of contributory negligence or prevent parties from expressly contracting out of or modifying the operation of the Act concerning their rights, obligations and liabilities. But presumably since it reduces the scope of liability, most insurers providing cover to commercial firms would be insisting that the ‘opt out’ provision of the CLA 2003 wasn’t exercised.

What it does do is to narrow the standard of care owed, set out principles about causation, the voluntary assumption of risk, the nature of the duty of professionals, contributory negligence and the effect of criminal behaviour.

In the definition section (Schedule 2 ‘Dictionary’), duty is stated as meaning:

(a) the duty of care in tort or

(b) a duty of care under contract that is concurrent or coextensive with a duty of care in tort or

(c) another duty under statute or otherwise that is concurrent with a duty of care mentioned in paragraph (a) or (b).

While duty of care ‘means a duty to take reasonable care or to exercise reasonable skill (or both duties)’. The CLA 2003 set out the verbal formula of the standard of care in section 9:

9. General principles

1. A person does not breach a duty to take precautions against a risk of harm unless:

(a) the risk was foreseeable (that is it is a risk of which the person knew or ought reasonably to have known) and

(b) the risk was not insignificant and

(c) in the circumstances, a reasonable person in the position of the person would have take the precautions.

2. In deciding whether a reasonable person would have taken precautions against a risk of harm, the court is to consider the following (amongst other relevant things):

(a) the probability that the harm would occur if care were not taken

(b) the likely seriousness of the harm

(c) the burden of taking precautions to avoid the risk of harm

(d) the social utility of the activity that creates the risk of harm.

This seems to be a composite of the four part test in Wagon Mound No.2 and Justice McHugh’s five principles in Perre v Apand Pty Ltd [1999] HCA 36 as discussed above. Then in sections 11–12, the CLA 2003 set out the operative principles—with expression inclusion of a policy principle—to govern the critical issues of causation and proof:

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11. General principles

1. A decision that a breach of duty caused particular harm comprised the following elements:

(a) the breach of duty was a necessary condition of the occurrence of the harm (factual causation)

(b) it is appropriate for the scope of the liability of the person in breach to extend to the harm so caused (scope of liability)

2. In deciding an exceptional case, in accordance with established principles, whether a breach of duty—being a breach of duty that is established but which cannot be established as satisfying subsection (1)(a)—should be accepted as satisfying subsection (1)(a), the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the party in breach …

12. Onus of proof

In deciding liability for a breach of a duty, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue if causation.

And finally s. 22 specifies the operative Standard of care for professionals:

1. A professional does not breach a duty arising from the provision of a professional service if it is established that the professional acted in a way that (at the time the service was provided) was widely accepted by peer professional opinion by a significant number of respected practitioners in the field as competent professional practice.

2. However, peer professional practice cannot be relied on for the purposes of this section if the court considers that the opinion is irrational or contrary to a written law …. [3–5].

In other words, the CLA 2003 restricts liability to reasonably foreseeable, not insignificant remote risks of the sort that attracted liability in Wagon Mound No. 2. Applying sections 9–12 CLA 2003 to the facts in Wagon Mound No.2 would seem to prevent the ship owners being held liable for the damages resulting from a very remote event despite the illegality of the spill and their slack response in stopping it spreading.

It is indeed difficult to take precautions (and affordable insurance) against risks you’re not aware of or are so improbable they should sensibly be ignored especially if the cost of minimising them isn’t economically feasible. To otherwise impose liability in tort in such cases, is to aid the imperial march of contract law, incorporating its standard of strict liability for the performance of voluntary assumed undertakings into obligations imposed by law.

References

Atiyah, PS 1986, Essays on contract, Clarendon Press, Oxford.

Baker, CD, Gibson, A, Corbin, L & Blay, S 2002, Torts law in principle, 3rd edn, Law Book Co, Sydney.

Ipp, D 2002, Negligence—where lies the future?, viewed 13 May 2005, http://www.lawlink.nsw.gov.au/sc%5Csc.nsf/pages/ipp_1002032

Stone, J 1985, Precedent and law: dynamics of common law growth, Butterworths, Sydney.

Turner, C and Trone, J 2013, Australian commercial law, 29th edn, Thomson Reuters, Sydney.