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(SC)Tort W3M: Negligence:
DUTY of CARE and CAUSATION IN
FACT
General Comments:
Duty of care requirement:
Basic test to approach every court case in trying to determine when a DOC should
be imposed: someone liable for the action towards P whom they have a DOC
Classic two stage test put forward in 70s in HoL by Ann
Step 1: if there was a sufficient relationship of proximity, such that in the
reasonable contemplation of the D, carelessness might be able to cause harm to
P? (prima facie DOC). Sufficient relationship is needed.
Step 2: is that PF duty negated by any other considerations? Wide test that
might impact WON a duty should be.
Over the years, doubt began surfaces about the decision, cases in UK leading to
Caparo, questioning the two stage test, also HILL: where the HoL make it clear that
foreseeability does not enough to trigger the PF duty. There were worries that
replacing the onus on the D to disprove a PF duty as soon as you find foreseeability,
as soon as the P show foreseeability, suddenly the onus shifted to D to say that there
are other considerations which the DOC not to be found in the situation. There are
concerns for it is the reversing the onus on a far too low a threshold.
Caparo p.35 Decision again about negligent statement (what they said rather than what they have
done).
Facts: It‟s about P (Caparo) made a successful takeover decision of the company
and in part they based their decision to take over the company upon a report made
public by the D‟ s auditor (target company auditors). P was the shareholder of the
company. Once they took over the company, instead of taking a profit as the auditors
suggested in the report, the company is making a sizable loss. Caparo loss a lot of
money tried to sue the auditor for negligently preparing the auditor‟s report.
Issue: did D owe any duty to P either as a current shareholder (when they make the
report) or as a prospective takeover bidder in the future?
HoL’s treatment of the Ann’s test: how the UK has treated as bring the Ann‟s test
to a halt.
Overview of precedent: Overview of D v S, Home office and Anns.
Mythodology:
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#1 (Lord Bridge of Harwich) “What emerges is that, in addition to the
foreseeability of damage, necessary ingredients in any situation giving rise to a
duty of care are that there should exist between the party owing the duty and
the party to whom it is owed a relationship characterised by the law as one of
"proximity" or "neighbourhood" and that the situation should be one
in which the court considers it fair, just and reasonable that the
law should impose a duty of a given scope upon the one party for
the benefit of the other.
INTERPRETATION: after Ann‟s, recently we have series of cases that
emphasis the inability of any single general principle (practical test) which
can be applied to every situation. And no one single general test is useful.
Instead, what we need to look at all these cases which include
foreseeability but not limited. Apart from foreseeability, we must also look
to the relationship between D and P whether it is one of „proximity” or
neighborhood, and finally situation should be one in which it is fair, just
and reasonable for the duty to be imposed. v
This is called Caparo three stages: foreseeability is a necessary ingredient
but not sufficient by itself, you also need proximity and neighborbhood
(going back to D v S) between the P and D, and finally if it is fair, just and
reasonable to impose a DOC.
#2“But it is implicit in the passages referred to that the concepts of proximity
and fairness embodied in these additional ingredients are not susceptible of any
such precise definition as would be necessary to give them utility as practical
tests, but amount in effect to little more than convenient labels to attach to the
features of different specific situations which, on a detailed examination of all
the circumstances, the law recognises pragmatically as giving rise to a duty of
care of a given scope. “ INTERPRETATION: After settled the ingredients that we need to look to,
the court then said they are certainly ingredient but not precise definition
test, they certainly of little use “convenient labels” place on different
factor which the court look at in different scenario and what the court
decided pragmatically are in important in this case. They are not very
useful at all, which are merely labels applied to facts in a particular fact
scenario. They can help us, but not useful.
#3"It is preferable in my view, that the law should develop novel categories of
negligence incrementally and by analogy with established categories, rather
than by a massive extension of a prima facie duty of care restrained only by
indefinable 'considerations which ought to negative, or to reduce or limit the
scope of the duty or the class of person to whom it is owed."'
INTERPRETATION: We also see is a recognition by the HoL of the
usefulness of the incremental approach( i.e, building on by analogy and
established case and incrementally advancing the law by looking back
what had been decided before where the duty had been recognized in cases.
Instead of going to embark a massive extension of the law into huge areas.
This is a recognition of the concern that our court had in Marx, where
there was an attempt to extend the duty owed to employer and ALSO to
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his family circle.
Replaced Anns test by three stage test (labels only) and really need to be look at
what had been decided before and develop the law incrementally in the area. And
should not apply a new and massive extension of where we recognized the duty fore.
Problem: The question is does this make MUCH of a difference between Anns and
Caparo? CA and our SC says there is NO difference, just a different ways of labeling
effectively the same factor, no matter what approach the court use, are going to look
at similar factors. Cooke J in South Pacific said does not really matter what
approach you use, you are going to end up the same result.
Development: Turn from UK to NZ where we have reached quite a settled state of
law in terms of what the approach should be and recognition by our court no matter
what the test/apparoach is, each time we approach this, we are MERELY using a
framework that help us to regulate and help our thinking in our organization in
particular fact sitaution in question. What it means is that w must look at facts of the
case, how similar cases been decided, and decide what will the court find, what tell
against/towards the DOC? It is an intensely pragmatic and factually centered
approach.
These cases below give us some guidance of what they would find useful to look at in
determining the DOC:
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South Pacific Manufacturing Co Ltd
Importance: Still get cited today as a useful approach. Decided by Cooke P.
Background: These two proceedings came before the Court of Appeal in different
ways. The first (South Pacific Manufacturing Co Ltd v New Zealand Security
Consultants & Investigations Ltd) was an appeal against a judgment of the High
Court ordering that a cause of action alleging negligence against various of the
respondents be struck out. In the second case (Mortensen v Laing) the Master
refused to strike out similar allegations. An application to the High Court for review
of that decision was removed by consent into the Court of Appeal, being treated as if
it were also an appeal. Both matters were heard together.
Facts:
First matter:
Investigator for the insurance company for the fire, they claim the
shareholders an insecure creditor claimed that they had investigated the
fire negligently. That caused loss because the company had not received
any insurance payout. The shareholder does not get any residual access of
the company and also Unsurecured creditors do not money to pay
insurance money paid out. The insurance reporters were negligently report
the incidence of fire.
Plaintiff: The first case the people suing were merely the third parties.
There were insurance company, which have a contract with the insured
company, and also the third party suing the insurance company, which are
unsecure creditor and shareholder.
Argument for P: Insurance reporter making negligent statement: not that
they had done something negligently.
Second Matter: The Liangs who were actually in a contractual relation with the insurance
company. They were insured.
CA: heard two things together because some of the arguments were the same, Cooke
P laid out some clear guidelines as to how NZ treated DOC issues:
Two board fields of inquiries:
1.) proximity (between the D and P) and
2.) policy considerations
A. Reformulation of Anns‟ test: the significance of difference is that it makes it
explicit that foreseeablity is not enough for proximity: jus because you can
show proximity, which includes proximity, does not mean that there is a prima
facie duty of care; at no stage there are any assumption of that present, we also
need to look at all the factors. Firstly, proximity; secondly, what policy reason
argued for and against the duty: we look at all the material facts in combination
in order to decide whether or not liability should owe:
#1 (Cooke P) “When a duty of care issue arose in a situation not clearly
covered by existing authority, the proper approach was to look at all the
material facts in combination, in order to decide whether as a question of
mixed law and fact, liability should be imposed.”
#2 “A broad two-stage approach or any other approach is only a
framework, a more or less methodical way of tackling a problem. How it is
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formulated should not matter in the end. Ultimately the exercise can only
be a balancing one and the important object is that all relevant factors be
weighed. There is no escape from the truth that, whatever formula be used,
the outcome in a grey area case has to be determined by judicial judgment.
Formulae can help to organise thinking but they cannot provide
answers. ”
B. Foreseeability and proximity : Cooke P things foreseeability does not equate
to proximity (although under Ann‟s test it‟s the same) but also give us some
clues as to what else comes in the proximity test:
#3“I am of the school of thought that has never subscribed to that view,
largely because of Lord Wilberforce's reference to a sufficient relationship
of proximity or neighbourhood. It would be naive, and I believe absurd
and dangerous, to assert that a duty of care prima facie arises whenever
harm is reasonably foreseeable. Even quite unlikely consequences may be
reasonably foreseeable (such as Bolton v Stone). Naturally the degree of
likelihood and the seriousness of the foreseeable consequences can be
important factors in the balancing exercise”
When we look at foreseeability, we look at a couple of thing such as
the likelihood of something happening and the seriousness of the
consequences (the danger posed to the P) .
We seen these two factors when looking at SOC. The similar factors
that can tell against the standard of care, can also tell against DOC.
Trouble of negligence is we divide up the issues, when we put
together, these issues overlap.
C. Incremental approach: Cook P think that it is not that useful (in Caparo,
Marx and Sullivan):
#4 “But it seems to me that the label "incremental" solves few problems.
Thus in Murphy v Brentwood District Council [1991] 1 AC 398, 462, 475,
487, 492, the House of Lords reaffirmed unanimously that a careless
builder is liable in damages to a subsequent purchaser who suffers
personal injury from a latent defect. Lord Bridge of Harwich at p 475
expressed the opinion that the building owner ought to be able to recover
in tort from the negligent builder the cost of obviating a danger, by repair
or demolition, to persons or property on neighbouring land or the highway.
Subject to that qualification or possible qualification, their Lordships held
remedial expenditure irrecoverable. To others, for instance Lord Denning
MR and apparently the other Judges in Dutton v Bognor Regis Urban
District Council [1972] 1 QB 373, 396, at first instance [1971] 2 All ER
1003, this seemed an impossible distinction. In their view the defendant is
liable in either case. That view treats the liability as almost self-evidently
incremental. I am not here intruding an opinion about which view is
correct, but merely making the point that the problem is not answered by
saying that the approach should be incremental.”
Point 1: incremental approach does not make a difference whether we
are incremental or not. Why is that? Because you still have to decide
the duty is incremental or massive change. It just disguises the fact
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that the decision is subjective. UK careless builder (when we look at
defective building is liable for just the danger the building poses, or
also the property value as well). He says incrementalism does not
solve the problem still need to decide whether there is a incremental
change or massive change. Disguised the fact hat we are making an
arbitrary decision. ??
Point 2: DOC owed today must not be owed in five years time.
(philosophical approach). your right depend on when your case is
taken.
#5: “It may be added that in the Supreme Court of Ireland,
where Anns has been applied in holding that a common law duty
of care to avoid economic loss was owed by an administering
local authority to a prospective purchaser-mortgagee, it has
been robustly said that "the verbally attractive proposition of
incremental growth . . . suffers from a temporal defect - that
rights should be determined by the accident of birth":”
Discussion point: it is built on what goes on before. Novel fact
situation (sui generis) situation can not be applied in the
incremantalism.
4. Assessment: when Assessing the duty of care in novel situation; which is to
decide whether it is fair, just and reasonable that DOC be imposed upon the
defendant: this is a intensely pragmatic question you have to see how cases
been dealt with in the past, other competing moral claims, are there other policy
consideration restricted the finding of a duty, policy reason can cut both ways. :
#6: “When a duty of care issue arose in a situation not clearly covered by
existing authority, the proper approach was to look at all the material
facts in combination, in order to decide whether as a question of mixed
law and fact, liability should be imposed. The ultimate question is whether
in the light of all the circumstances of the case it was just and reasonable
that a duty of care of broad scope was incumbent on the defendant. This
was an intensely pragmatic question requiring most careful analysis. It
was helpful to focus on two broad fields of inquiry. The first was the
degree of proximity or relationship between the alleged wrongdoer and the
person who had suffered damage. That involved consideration of the
degree of analogy with cases in which duties were already established and
reflected an assessment of the competing moral claims. The second was
whether there were other policy considerations which tended to negative
or restrict - or strengthen the existence of - a duty in that class of case.”
Factors: Proximity of relationship, policy, and foreseeability
Policy reasons can but both way
Whether NZ follow Ann or Caparo:
Why should NZ continue to follow Ann‟s test? (Cooke P)
There have been no problems with it, therefore we should
continue. That has not caused difficulty or concern either to bar
or community.
He said he could not recognize between the two approaches.
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All counsels recognize in the case that the same considerations would be under
Caparo or Anns‟s test, there is no consideration in the incremental approach in
Caparo‟s approach which would not be taken into account in the NZ in these
broad areas. Because we are trying to reach the same answer that whether DOC
should be found in particular defendant)
Is it fair, just and reasonable: look at the proximity between the party and any
policy reasons point for will point away finding of a duty, which is a re-
formulated Ann‟s test. (this is the new Zealand approach to duty of care
question)
Some factors relating to SOC can also be used to justify the finding of duty or
no duty. (36:52)
FROM JUDGMENT:
Richardson J
…proximity reflects a balancing of the plaintiff's moral claim to compensation for
avoidable harm and the defendant's moral claim to be protected from an undue
burden of legal responsibility.
There are four features of the case under this head which together satisfy me that
the relationship between the parties was sufficiently proximate to raise a prima
facie duty of care. The first is the direct and close nexus between the defendant's
negligence as alleged and the plaintiffs' loss….
The second is that the defendant is not in a position to say that the imposition of a
duty of care would expose him to a burden out of proportion to his moral
culpability. It is not suggested that there is any significant conflict between his
obligations to the insurer under the contractual duty of care and any obligations to
the plaintiffs under the common law duty of care. It is not suggested that the cost
of being careful, of carrying out the investigation and making his report with due
care, would have been unfairly onerous.
The third is that the statute under which the defendant's company was in due
course licensed to carry our such investigations reflects a public interest in the
competency of investigators. The statute is the Private Investigators and Security
Guards Act 1974. In terms of the long title and as it applies to private
investigators its object is to:
". . . provide for the licensing of private investigators as a means of affording greater protection to the
individual's right to privacy against possible invasion by private investigators . . . and to regulate the conduct of business by private investigators . . .".
An investigator such as the defendant, who in the course of his business is seeking
information for the insurer relating to the actions and behaviour of an insured, is a
private investigator within the meaning of s 3 and is required to hold a licence
under the Act. While there is particular emphasis on the personal character and
fitness of a licensed investigator and the statute provides its own sanctions under
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the disciplinary and offence provisions, one specific ground of complaint to the
Registrar is that the licensee has been guilty of negligence in the course of the
business to which the licence relates (s 53(4)(d)), and civil remedies that any
person may have against a licensee are not affected by the Act (s 73). The
important point is that the relationship between investigator and the subject of the
investigation is recognised as sufficiently proximate in its likely effects on those
investigated to call for legislative oversight.
Finally, viewed simply in terms of proximity there is a clear parallel with two
categories of cases where a duty of care has been recognised. One is the duty
owed by a solicitor to a designated beneficiary under a will where the solicitor has
accepted instructions to prepare the will for execution but has failed to do so before the testatrix dies (Gartside v Sheffield, Young & Ellis [1983] NZLR 37). The
other is the duty owed by a receiver appointed by a debenture holder to the holder
of a subordinate security, the value of which is adversely affected by the conduct of the receiver (First City Corporation Ltd v Downsview Nominees Ltd [1990] 3 NZLR
265). In those two cases, as here, the defendant assumes a responsibility to act
carefully in undertaking an activity; in each there is a similar dependence and
power relation between the plaintiff and the defendant; in each there is a high
degree of likelihood that careless performance of that responsibility will cause
harm to the plaintiff.
Wider policy concerns:
While the proximity of the relationship may be said to raise a prima facie duty of
care there are in my view overwhelming policy reasons for denying such a duty in
this case.
First, there are various public policy considerations arising from any superimposing
of a direct duty of care in tort owed by the investigator to the insured on top of the
immediate contractual relationship between insured and insurer on the one hand
and insurer and investigator on the other. Under the insurance contract each party
has duties of good faith and fair dealing to the other. The common law also
imposes on a person who contracts to carry out an operation an obligation to
exercise reasonable care and skill (Smith v Eric S Bush [1990] 1 AC 831, 844),
although that implied obligation may be excluded in the particular contract. The
insurance policy in this case is not in evidence. It would be surprising, however, if
the insured did not have a remedy against the insurer for failure to take
reasonable care in investigating and determining the insured's claim under the
policy.
These were commercial premises and commercial insurance contracts are
frequently negotiated through brokers. The amount of the premium is the price
paid for the particular cover agreed. If the insured have a remedy in contract
against the insurer they should exercise that remedy. If they do not have an
adequate remedy that is because they only paid a premium which gave them that
lesser protection. In that situation I cannot see any justification for allowing them
a greater recovery through tort than they were prepared to pay for in contract.
The second contract is between insurer and investigator. There, too, the parties
have their expressly or impliedly agreed remedies for any negligence in the
performance of the contract (Gold Star Insurance Co Ltd v Dominion Adjusters Ltd [1982] 2 NZLR 38); and in the absence of an exclusion of liability the duty of care
P a g e | 9
applies both to the work of the investigator which results in the report and to the
report itself.
It is in relation to remedies that the present case differs markedly from Gartside
and Downsview. Here contractual remedies are an appropriate sanction against
want of care in the performance of the activity. No claim under the contract was
available in those cases in respect of that kind of negligent performance for the
simple reason that the other party (the testatrix and her estate in Gartside and the
first debenture holder in Downsview) suffered no loss.
Those were the respective bargains the present parties made. Tort theory should
remain consistent with contract policies. In public policy terms I consider that
where, as here, contracts cover the two relationships, those contracts should
ordinarily control the allocation of risk unless special reasons are established to
warrant a direct suit in tort. That accords, too, with Simaan General Contracting
Co v Pilkington Glass Ltd (No 2) [1988] QB 758 where for policy reasons the
English Court of Appeal concluded that any claims by A (Simaan) against B (Feal)
and by B against C (Pilkington) could and should be pursued down the contractual
chain and that there was no warrant for extending the law of negligence to impose
direct liability in tort on C in favour of A.
No special factors such as those discussed in Smith v Bush have been advanced in
this case. In particular, it was not suggested that through oligopolistic trade
practices or other market failure the parties to such commercial insurance
arrangements could not be expected to arrive at commercially acceptable bargains
and that state intervention through the imposition of legal obligations in tort was
required in the public interest to redress that kind of imbalance. That was not
contended for.
Here the plaintiffs seek relief in tort for what are essentially contract based losses
in circumstances where there are no discernible public interest considerations
warranting departure from the allocation of risks as agreed contractually. And it is
not as if the case involves a choice between letting the loss remain with the
injured party and transferring it to another through a tort action. Where those are
the stark alternatives it may be reasonable to focus particularly on the respective
moral claims of one as against the other. But a plaintiff who has had the
opportunity under her or his primary contract to obtain full contractual protection
against that kind of loss cannot expect society to provide further protection
through tort law.
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Roll-Royce NZ: Facts: there was no contract between the D and P. Despite no contractual
relationship, RR was named as the sub-contractor. It turns out that D build the plant
negligently. It sued G in contracted but couldn‟t sue RR because there is no
relationship. So they sued GG in tort for negligence.
[1] The predecessor to Genesis Power Ltd (Genesis) contracted to procure the
building of a cogeneration plant at Carter Holt Harvey Ltd's (Carter Holt's)
Kinleith mill. Carter Holt claims that the plant is defective. It sues Genesis
primarily in contract and Genesis' subcontractor, Rolls-Royce New Zealand Ltd
(Rolls-Royce), in negligence. Note: There were two contracts- one for the construction of the generation plant (the
cogeneration contract) between CH and ECHZ (now Meridian) and the “turnkey”
contract between ECNZ and RR to provide the necessary equipment. [6] There were limitations on the liability of the ECNZ…. contained in particular
in cls 10.3 and 10.4. In summary, cl 10.3 provided that (with certain exceptions,
none of which are presently relevant) neither KCL nor the ECNZ was to be liable
for any indirect or consequential loss. Clause 10.4 provided that KCL and the
ECNZ are liable for direct losses only and set a maximum liability for any loss of
or damage to any property of $10m for any single occurrence. [7] On 4 July 1995, the ECNZ entered into a second agreement with Rolls-
Royce, the contractor selected to design, construct and commission the plant
(the turnkey contract). The works under that contract comprised two sections;
the boiler and the turbine generator…. [10] There was no direct contractual relationship between Carter Holt and Rolls-
Royce. The cogeneration contract had, however, been entered into on the basis
that Rolls-Royce would be the subcontractor and there had been design work
and even some construction work undertaken by Rolls-Royce on the project
before the turnkey contract was signed. This was on the basis of a letter of
intent signed by the ECNZ and Rolls-Royce which had been provided to Carter
Holt Issue: do you think DOC recognized between CH and RR?
If yes, reason is that because it is reasonable in D v S for that to be owed: a
contractual relationship is necessary to find a duty of care. As a manufacturer,
they have DOC to end consumer. BUT this is bad argument (distinguishes from
D v S), because :
Although, P is an end consumer. The damage caused is arguably
economical (not just physical sickness). The type of damage is one that CL
generally gives less weigh to. Economic loss as opposed to physical injury.
The CL treats personal injury that we are going to protect much more
strongly than economic loss. The judge says: “when you have an
economic loss someone benefits, but no net loss to society, as opposed to
physical injury” but that is a very weak reason to protect physical integrity
in negligence. Someone physical integrity is much more imp. Than
economic loss.
Also, the P had the option to contract directly, they chose not to. Two
massive cooperation which the court would say should protect their own
interest in contract but chose not to.
Duty is not found because of contractual matrix. The major fact was P could have
P a g e | 11
protected themselves via contract. They use negligence to do something which they
refuse to pay for via contrual. They have also remedies via Genesis.
Glazerook: [53]”a framework rather than a strait-jacket..the effect of the duty of care
would have, other legal duty, as well as society, what impact will have on other legal
duty and other society”. Will it to give P, caused D to be overly defensive in the
future, will finding a duty help to impose good standard in the part. Industry, will
finding a duty make good loss P had suffered (should be able to recover for), place
great a burden. Questions that will come in the policy debate.
FROM JUDGMENT:
Nature of the claim:
[55] As a result, it is alleged that the plant suffered from the defects, most of
which are related to its not meeting the technical specifications in the contract.
The other defects identified are alleged general defects in the plant itself, but
there is no allegation that any of them is dangerous. All arose during the defects
liability period and there is no allegation of latent defects. There is also no
allegation of any physical damage to the property of Carter Holt, other than
physical damage to components of the plant itself, allegedly caused by defects in
other parts of that plant. There are no allegations of possible future damage to
other property that might be caused by defects in the plant.
[56] The allegation, therefore, is essentially that, through Rolls-Royce's
negligence, the plant does not perform as Rolls-Royce in the turnkey contract
promised that it would. The losses alleged are those occasioned by the
rectification of the defects and loss allegedly arising from the defects while they
remain unrectified.
Test to be applied: [58] Should there be a duty of care in a case such as this? The ultimate
question when deciding whether a duty of care should be recognised in New
Zealand is whether, in the light of all the circumstances of the case, it is just and
reasonable that such a duty be imposed. The focus is on two broad fields of
inquiry but these provide only a framework rather than a straitjacket. The first
area of inquiry is as to the degree of proximity or relationship between the
parties. The second is whether there are other wider policy considerations that
tend to negative or restrict or strengthen the existence of a duty in the
particular class of case. At this second stage, the Court's inquiry is concerned
with the effect of the recognition of a duty on other legal duties and, more
generally, on society.
[59] The inquiry into proximity is concerned with the nature of the relationship
between the parties and is more than a simple question of foreseeability. It
involves consideration of the degree of analogy with cases in which duties are
already established. This is because Courts should only move gradually into new
areas of liability and also because the examination of factors that have
influenced earlier decisions ensures that any development of the law occurs in a
principled and cohesive manner.
P a g e | 12
[60] The proximity inquiry can be seen as reflecting a balancing of the plaintiff's
moral claim to compensation for avoidable harm and the defendant's moral
claim to be protected from undue restrictions on its freedom of action and from
an undue burden of legal responsibility. That necessarily involves a consideration
of how close the nexus is between the defendant's alleged negligence and the
plaintiff's loss and the degree of harm to the plaintiff. It also involves considering
the burden on the defendant of taking precautions against the risk and also
whether the consequences to the defendant may be out of proportion to its fault.
[61] The extent to which those in the plaintiff's position are vulnerable can also
be taken into account. The inquiry may in this case concentrate on whether a
defendant with special skills has power over a vulnerable plaintiff…
[62] Whether there are or could realistically have been other remedies for a
plaintiff is relevant to the assessment of vulnerability. If there are, then this may
point to there having been adequate means for the plaintiff to protect itself and
to there being adequate deterrence for the defendant …Professor Todd considers
that the focus should be on what steps a person could reasonably have taken to
look after his or her interests and, in commercial cases, includes the
consideration of bargaining power and market reality.
[63] The nature of the loss can also be taken into account. The Courts have
been less willing to impose a duty of care in cases of economic loss than where
there is physical damage to property or, in jurisdictions other than New Zealand
with its accident compensation regime, physical injury….this is because claims
for economic loss may result in mere transfers of wealth, so that one person's
loss is another's gain, whereas harm to a person or property involves a net loss
to social wealth.
[64] The statutory and contractual background may also be relevant in defining
the relationship between the parties and can point, depending on the
circumstances, both towards and away from a finding of proximity. The statutory
and contractual background can raise wider policy issues and thus the boundary
between proximity and policy can merge. The two-stage approach is, however,
only a framework and no presumptions, rebuttable or otherwise, arise at any
stage of the inquiry. This means that the important object is that all relevant
factors are properly weighed, not the stage of the inquiry at which they are
taken into account…
[65] For example, in Price Waterhouse v Kwan, at p 41, para [6] Tipping J
considered the relevant legislative environment to be of considerable relevance
to the issues of both proximity and policy and, in South Pacific Manufacturing, all
of the Judges considered that the existence of contractual remedies against the
insurer militated against there being a duty of care. Casey J, at p 314, treated
this factor as being a factor pointing against there being the requisite degree of
proximity. Hardie Boys J, at pp 318 – 319, said that the existence of alternative
remedies was a factor that could point against proximity being present but in
fact dealt with the contractual remedy against the insurer as a policy
consideration weighing against the imposition of a duty, as did all the other
Judges. Cooke P, however (at p 301), also referred to the contractual structure
in his discussion of proximity, approving of the reasoning in Simaan.
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Issues with current form of claim:
[66] Before proceeding further, we note that the claim could not succeed in its
present form. To recap, the main duty alleged in this case is a duty to take
reasonable care to ensure that the plant was constructed in accordance with
contractual specifications contained in a contract to which Carter Holt was not a
party. There is no duty in tort to take reasonable care to perform a contract. At
most, there is a duty to take reasonable care in or while performing the contract,
which is quite a different concept. Carter Holt's pleadings mainly assert the
former. A duty formulated in such terms is essentially contractual in nature and
therefore cannot be owed to one who is not a party to the contract.
[67] Even where the duty alleged is couched in the statement of claim in more
general terms, the loss is linked for the most part to losses arising from the
failure to meet the contractual specifications. This raises the related issue of the
relevant standard of care. The difficulty in setting a standard of quality, if tort
liability is imposed, has long been a reason put forward for not imposing a duty
of care in this type of case – see for example Lord Brandon's dissent in Junior
Books Ltd v Veitchi Co Ltd at pp 551 – 552.
[68] The problem is not so acute in the case of buildings or products destined
for private individuals, although there may remain issues with ensuring that any
standard imposed is no greater than any standard set in a relevant contract. As
a majority of the High Court of Australia pointed out in Woolcock Street
Investments Pty Ltd v CDG Pty Ltd at para 28, at the least, the contract defines
the task that was undertaken and there would be difficulty in holding that a
defendant owed a duty of care if performance of that duty would have required
the defendant to do more or different work than the contract with the original
owner required or permitted. Even where there is concurrent liability in contract
and tort, the Courts are careful to ensure that tort liability does not extend
beyond the contractual liability with regard to matters covered by the contract –
see Henderson v Merrett Syndicates Ltd, at p 194 and Frost and Sutcliff v Tuiara [2004] 1 NZLR 782, at p 789 where Tipping J said for this Court that, in
conventional circumstances, the two causes of action will usually be concurrent
and co-extensive. It should be no different where the contractual relationship is
indirect.
[69] The problem of setting quality standards, which do not relate specifically to
contractual standards, is acute when dealing with commercial construction
contracts for specialist plant with detailed specifications, as is the case here.
This in itself must be a factor weighing against a duty being recognised.
Discussion of case law:
[70] Assuming that the claim can be repleaded to the extent necessary to deal
with the issues set out above, we embark on an examination of the proximity
question and begin with a discussion of the case law. In summary, in New
Zealand there is no case where a duty of care has been found to exist in
analogous circumstances,
P a g e | 14
[71] Liability to subsequent owners of domestic dwellings for defects in such
dwellings has, however, long been a feature of New Zealand case law, since
Bowen v Paramount Builders (Hamilton)
[72] Doubt has, however, been expressed in New Zealand as to whether liability
extends to commercial construction cases, see Invercargill City Council v Hamlin, at p 520 (CA) (Cooke P) and Riddell v Porteous [1999] 1 NZLR 1 (CA), at p 12. In R
M Turton v Kerslake, p 418 the majority (Henry and Keith JJ) said that, in a
comprehensive contractual situation such as existed in that case, the Court
should hesitate to go beyond that relationship to impose a tortious duty outside
that framework but affecting the rights and liabilities of the parties within that
contractual setting.
[74] The distinction between commercial and domestic buildings was not,
however, favoured because of the difficulties of definition. …the test
now…concentrates on what are called salient features. (note: the court reviewed
the law of CA and Australia which in some circumstances allowed damages for
repairs to dangerous buildings and the lack of a general approach in the United
States)
[80] It is worth saying a little more about the position in England. As indicated
above, liability to subsequent purchasers of buildings was denied by a special
seven-Judge panel of the House of Lords in Murphy. There are two cases in
England, however, that are directly in point: Junior Books Ltd v Veitchi Co Ltd
and Simaan General Contracting Co v Pilkington Glass Ltd (No 2).
81] In Junior Books, a subcontractor was held by a majority of the House of
Lords (Lord Brandon dissenting) to owe a duty of care in tort to the owner with
regard to defects in the flooring it had installed in a factory. In Simaan, the
plaintiffs were the main contractors for a building in Abu Dhabi. The contract
specified that units of green glass manufactured by Pilkington were to be
incorporated into the curtain walling. The plaintiffs subcontracted the supply
and erection of the curtain walling to subcontractors who purchased the glass
from Pilkington. There was thus no contractual relationship between the
plaintiffs and Pilkington. It was alleged that the glass supplied was defective
owing to discrepancies in its colouring. The colour discrepancy was
unacceptable to Sheikh Al-Oteiba, the building owner. The Court of Appeal held
that there was no tort liability.
[82] The majority decision in Junior Books has been the subject of much
criticism – see that referred to by Stephen Todd The Law of Torts in New
Zealand (3rd ed, 2001) at p 296. It has also been distinguished on many
occasions. Indeed, in The Orjula [1995] 2 Lloyd's Rep 395, at p 401, Mance J
described Junior Books as a case that appeared to have “joined the slumber of
the uniquely distinguished from which it would be unwise to awaken it without
very solid reason”.
[83] Later House of Lords decisions, including Murphy, have, however,
stopped short of overruling it but all have acknowledged difficulties with the
decision. Its ambit has been suggested as being restricted to a situation where
a subcontractor can be seen as having a special relationship with the owner
through an assumption of responsibility in the Hedley Byrne sense: see D & F
Estates Ltd v Church Commissioners for England [1989] 1 AC 177 (HL), at pp
201 – 202; Henderson v Merrett Syndicates Ltd, at p 196 and Murphy v
P a g e | 15
Brentwood District Council, at p 466 (Lord Keith), and at p 481 (Lord Bridge)
(HL).
[84] Simaan is a case that has, on the other hand, been widely approved both
in New Zealand and the United Kingdom: see, for example, South Pacific
Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd,
at p 301 (Cooke P), and at p 308 (Richardson J); R M Turton v Kerslake, at p
411; Henderson v Merrett Syndicates Ltd, at p 196.
[85] The fact that Simaan was approved by Lord Goff in Henderson v Merrett
is particularly significant. That case held that managing agents owed a duty of
care to Lloyd's underwriting members (Names), both where there was a direct
contractual relationship between them and where the relationship was indirect.
In the latter case, Lord Goff emphasised that the imposition of such a duty
would be unusual. Lord Goff expressly approved Simaan and said that the
tripartite contractual structure in construction cases would normally preclude
there being an assumption of responsibility for quality matters directly to the
owner or to others in the contractual chain.
[86] It is, however, not entirely clear from Lord Goff's speech exactly what the
difference was between the situation of the indirect Names and that of the
subcontractor in Simaan. It may be that Lord Goff considered that the
construction industry had special characteristics, given that a contractual
structure allocating tasks and risks at each step (often in industry standard
[2005] 1 NZLR 324 page 347
form) is a necessary feature of the industry and that it would be inappropriate,
absent exceptional circumstances, to engraft upon what was covered by that
normal contractual structure a duty of care in tort.
[87] He may also have been considering the special structure of the Lloyd's
insurance industry and issues of parity between the direct and indirect Names,
as well as the particular vulnerability of the indirect Names and the necessary
reliance on the agents where, unlike in the construction industry, there was no
other obvious means of protection in the circumstances of the case. Indeed,
Professor Jane Stapleton in “Duty of Care: Peripheral Parties and Alternative
Opportunities for Deterrence” [1995] 111 LQR 301, at pp 338 – 339 considers
that this is the only coherent and principled basis of distinguishing between the
two situations.
[88] It is also difficult to see how the situation in Junior Books differed from
that in Simaan. Junior Books proceeded on the basis that the flooring
subcontractors were nominated skilled subcontractors and this is said to have
created the special relationship between them and the factory owner. The
subcontractor in Simaan was also a nominated subcontractor and presumably
also skilled in its field. Admittedly it was nominated by the Sheikh not the
plaintiff, but the judgments in Simaan make it clear that the same result would
have been reached had the Sheikh been the plaintiff.
[89] A possible difference between the two cases is that Junior Books
concerned a defective floor, which had structural significance, whereas in
Simaan the question was of variable colour of the glass and therefore arguably
was rather of aesthetics. It may be too (although this is not clear from the
judgments) that the only way it could be argued that the glass was defective
was that it did not meet the contractual specification, whereas the flooring
P a g e | 16
could have been seen as defective per se, without need to have recourse to the
contractual standard. It is difficult to see, however, that these possible
differences could have any bearing on whether or not there was a special
relationship between the plaintiff and the subcontractor.
Assumption of responsibility:
[97] It is worth at this point saying something more about the concept of
assumption of responsibility. Where negligent misstatement is at issue, although
the test for liability is the same as that discussed above, the proximity inquiry
generally focuses on the interdependent concepts of assumption of responsibility
by a person with a special skill and foreseeable and reasonable reliance by the
plaintiff: see Attorney-General v Carter, at p 168 para [22].
[98] The assumption of responsibility and reliance concepts have also been
used where the allegation is that services were negligently performed. This is
understandable as negligent misstatements and services may tend to merge.
For example, a negligent audit report is produced through the negligent
performance of audit services – see for example Price Waterhouse v Kwan, at p
43. Insofar as the disappointed beneficiary cases are concerned, the test has
been used, without the requirement of reliance: Gartside v Sheffield, Young & Ellis [1983] NZLR 37, at p 47. As discussed above at para [83], the assumption of
responsibility concept has also been suggested as an explanation for the finding
of liability in Junior Books.
[99] Assumption of responsibility for a statement or a task does not usually
entail a voluntary assumption of legal responsibility to a plaintiff, except in cases
where the defendant is found to have undertaken to exercise reasonable care in
circumstances which are analogous to, but short of, contract, and it is
foreseeable that the plaintiff will rely on that undertaking. If that is the case
then, subject to any countervailing policy factors, a duty of care will arise. In
other cases, the law will deem the defendant to have assumed responsibility
where it is fair, just and reasonable to do so: Attorney-General v Carter, at pp
168 – 169 (paras [23] – [27]). Whether it is fair, just and reasonable to deem
an assumption of responsibility and then a duty of care will depend on a
combination of factors, including the assumption of responsibility for the task,
any vulnerability of the plaintiff, any special skill of the defendant, the need for
deterrence and promotion of professional standards, lack of alternative means of
protection and so on – that is, essentially the matters discussed above at paras [58] – [65]. Wider policy factors will also need to be taken into account.
[100] Finally, we note that assumption of responsibility for the task cannot be
sufficient in itself, at least insofar as the negligent construction cases are
concerned. If it were, then the result in Simaan (which has been so widely
approved) could not be justified, as the subcontractor in that case had clearly
assumed responsibility for the task of supplying glass that accorded with the
contractual specifications. The question in Simaan was whether the
subcontractor had assumed responsibility to the plaintiffs and the answer given
in the case, although not expressed in that manner, was that it had not. Any
assumption of responsibility was only to the direct contracting party.
P a g e | 17
Factors pointing towards proximity:
[101] We now return to our discussion of proximity. The strongest factor
pointing towards a finding of proximity in this case is that of foreseeability. It
was clearly foreseeable that a lack of reasonable care on Rolls-Royce's part
would cause loss to Carter Holt and the type of damage caused would appear
also to have been foreseeable. There is, through the contractual structure, a
direct and close relationship between Rolls-Royce's alleged negligence and
Carter Holt's loss and there are, to paraphrase the famous comment of Cardozo CJ quoted above at para [60], no concerns about there being indeterminate
liability to an indeterminate number of plaintiffs.
[102] Another factor favouring liability is the very high degree of direct contact between Carter Holt and Rolls-Royce (discussed above at para [38]) before the
entry into the turnkey contract. As we indicated above at para [40], we do not
consider that contact after the entry into the contract is relevant, at least on the
current pleadings. Rolls-Royce's special skill in the design and construction of
cogeneration plants and the highly specialised nature of these skills is also a
factor of relevance, although Carter Holt alleges that Rolls-Royce misrepresented
its skills in that regard. We note in any event that the relevance of any special
skill of Rolls-Royce is diminished to some extent by the role of the liaison
engineer and the control Carter Holt was contractually able to exercise over the tender, design and construction process as described in paras [13] – [15] above.
As Blanchard J pointed out in Riddell v Porteous, at p 12, a distinction between
domestic and commercial cases may be able to be drawn because in the latter
case an architect or engineer will usually be employed
Factors point against proximity:
[103] The strongest factor pointing away from a proximity finding is the very
contractual structure that made loss to Carter Holt foreseeable and provided a
close nexus between Rolls-Royce's alleged negligence and Carter Holt's loss.
There is an unusual contractual structure in this case in that the ECNZ was
never intended to be directly involved in the design and construction phase. In
that sense, Rolls-Royce was not a subcontractor but the only contractor. This is
reflected in the obligations of the ECNZ being expressed in terms of using best
endeavours to ensure the specifications were met.
[104] There is no pleading that this contractual structure was forced upon
Carter Holt by Rolls-Royce and there seems no obvious reason why Rolls-Royce
would care whether it owed its contractual design and construction obligations to
the ECNZ or directly to Carter Holt. On the other hand, it is possible to conceive
of commercial reasons which may have led Carter Holt to prefer the contractual
structure as entered into. Given the other roles the ECNZ and KCL were to play
in the cogeneration process and their expertise in that area, it may have seemed
sensible commercially for them to be contractually tied in with the design and
construction phase and to ensure that the main burden of enforcement rested
with them rather than with Carter Holt. Indeed, we were told from the Bar that a
direct contract with Rolls-Royce had been considered but rejected by Carter Holt.
Whatever the position was, the parties were all sophisticated commercial parties
and there is no suggestion that there was other than equality of bargaining
power between them. Nor is there any suggestion of inequalities of bargaining
P a g e | 18
power generally in the marketplace between commercial parties to such
construction contracts.
[105] Mr Fardell, for Carter Holt, tried to make something of the fact that work
started on both design and, to a limited extent, construction before the turnkey
contract was entered into. We do not consider that this has any significance. It
was the choice of the parties that this be the case and Carter Holt still retained
the right to approve the turnkey contract.
[106] Although the cogeneration contract was limited in the obligations it
placed on the ECNZ and KCL, it did recognise the future existence of the turnkey
contract and contained important provisions to protect Carter Holt's position,
such as the provision for the benefit of warranties to inure to Carter Holt (cl
10.2.2) and the ability in some circumstances to take a direct role in the turnkey
contract (for example cls 17.2.1.2 and 17.2.3.2). This could be seen as pointing
to an intention on the part of the parties that these possible contractual rights
should be the only direct rights Carter Holt would have against Rolls-Royce, at
least unless and until there was a direct contractual relationship between them.
We note that this was the reasoning employed by the English Court of Appeal in
Norwich City Council v Harvey [1989] 1 WLR 828. We note also that McHugh J in
Woolcock Street Investments Pty Ltd v CDG Ltd at para [84] points out that
leading writers on construction law in Australia suggest a prudent principal
should enter into a collateral contract with subcontractors that contains
appropriate warranties and that Australian professional institutions have
endorsed particular contractual warranties in this regard. Similar comments
were made by John Greenwood and Tim Jones in the New Zealand Law Society
seminar paper, Building Contracts: The Essential Issues (1995) at pp 109 – 110.
[107] Entering into the amendment agreement with Genesis, once defects in
the plant became apparent, could also point against there being any expectation
of direct liability of Rolls-Royce. The amendment agreement contained further
protection for Carter Holt, for example by providing that the ECNZ would use its
best endeavours to ensure that Rolls-Royce performed its contractual obligations
under the turnkey contract to remedy defects arising within the defects liability
period (cl 4.26) or, in other circumstances, to meet the cost of work undertaken
by Carter Holt or to recover from Rolls-Royce Carter Holt's costs incurred in
remedying defects or damage (cl 4.27). We note, too, that all defects arose
during the defects liability period and so there is clearly a contractual remedy,
albeit in most circumstances an indirect one.
[108] Other aspects of the contracts also point against a duty of care being
imposed. It is not a case where the main contract and the subcontract mirror each other – see paras [4] – [16] above. We note in particular that the dispute
resolution mechanisms are different in the two contracts, with an arbitration
clause in the turnkey contract. The provisions relating to insurance in the two
contracts are also different.
[109] Also of relevance is the fact that there are limitation clauses in both the
cogeneration and the turnkey contracts. While the exact scope of the limitation
clause in the cogeneration contract is still to be determined, Carter Holt has only
paid for what is to be provided under that contract. It should not be able to
P a g e | 19
improve on its bargain by direct suit: South Pacific Manufacturing Co Ltd v New
Zealand Security Consultants & Investigations Ltd, at p 308 per Richardson J.
[110] There are also limitation clauses in the turnkey contract. These are set out in paras [31] and [32] above. GCC 42.1 is directed only at the ECNZ. SCC 20
is more general and we would be inclined to accept Mr Brown's submission
(made in the cross-appeal) that there would be little point in having the two
clauses if they were both directed at the ECNZ, although for these purposes it
would not matter if they were. The presence of a limitation clause in the contract
between a head contractor and subcontractor signifies clearly, if known to the
owner, the subcontractor's unwillingness to do the job otherwise than subject to
the limitation. The owner's acquiescence can then be deemed an acceptance of
the terms under which alone the subcontractor is prepared to enter into a
relationship defining its duty to the owner – see John Fleming “Tort in a
Contractual Matrix” (1995) 33 Osgoode Hall LJ 661, at p 665. As Jane Stapleton
says in “Duty of Care and Economic Loss: A Wider Agenda” (1991) 107 LQR 249,
at p 286, a plaintiff should not be allowed to circumvent either a contractual
bargain between the plaintiff and defendant or even a non-contractual but clear
understanding between parties as to where the risk would lie.
[111] Both clauses were brought to the attention of Carter Holt through Carter
Holt's review of the turnkey contract. Carter Holt is a commercial party. It was
legally represented and must be taken to have understood the import of the
clauses. SSC 20, as pointed out by Mr Brown, was on a separate page in the
special conditions and hardly concealed from view. It would also have been no
surprise to Carter Holt to find such clauses in the contract. Construction
contracts typically contain limitation or exclusion clauses, as evidenced by the
standard clause in the FIDIC Contract, upon which GCC 42.1 was based. Carter
Holt and its legal advisers must have been aware of this. As Professor Smillie
says in “The Foundation of the Duty of Care in Negligence”, at p 329, a
disclaimer might be able to be overridden, even with clear notice, where the
plaintiff is a private consumer who had no choice but to avail himself or herself
of the particular service on the terms offered, but it may at the same time be
appropriate to enforce a standard form of exclusion or limitation provision
against a commercial party, even in the absence of actual notice, if the plaintiff
could be expected to know that the product or service in question is normally
supplied subject to such conditions.
[112] We recognise that neither of the clauses exclude liability in tort. Indeed,
as pointed out by Mr Fardell, they in fact contemplate such liability by
specifically mentioning tort liability as a possibility. The important point,
however, is not that the clauses contemplate tort liability but that they attempt
to limit liability and that this allocation of risk was with the knowledge of Carter
Holt. The only thing that would have pointed to the limitation clauses not being
taken into account would have been if Rolls-Royce had represented that they did
not apply to Carter Holt. There is, however, no allegation of this kind in the
pleadings.
[114] Finally, we note that Carter Holt certainly cannot expect to have the
standard of care set by reference to the contract while at the same time denying,
as it wishes to do, that the limitation clauses apply
P a g e | 20
Policy considerations:
[117] There are a number of policy considerations pointing away from a duty of
care being imposed in this case. Some have already been discussed above,
including the difficulty, in cases where there are detailed contractual
specifications for specialised plant, of setting quality standards that do not relate
specifically to those contractual specifications.
[118] The main policy factor militating against a duty of care is the need for
commercial certainty. Commercial parties are normally entitled to expect that
the risk allocation they have negotiated (and paid for) will not be disturbed by
the Courts. It is also to be expected that commercial parties are capable of
looking after their own interests, including, especially in an industry where
insolvency is a major risk, the risk of insolvency of an intermediate party. On the
other hand, it is not necessarily the case that private individuals are in a position
to be able to protect themselves and this can justify a difference in treatment.
Is it fair, just and reasonable to impose a duty?
[121] The main factor pointing towards a duty in this case is foreseeability.
That largely derives from the contractual structure. The details of that very
same contractual structure, however, in our view, point strongly against a
finding of proximity. As indicated above, Carter Holt had the choice of
contracting directly with Rolls-Royce. It did not choose to do so, even though
the ECNZ's obligations in the main contract were limited to an obligation to use
its best endeavours to ensure the plant met the contractual specifications.
[122] The contracts were entered into by Carter Holt, in the form they were, in
the knowledge that the successful completion of the project was dependent on
Rolls-Royce. Carter Holt nevertheless made no attempt to have any greater
direct liability than that negotiated through the contractual structure. Indeed,
Carter Holt can be seen as having confirmed by the amendment agreement that
it was looking to Genesis to ensure the identified defects were rectified. To be
considered also are the differences between the main contract and the
subcontract and the limitation clauses in each. We reiterate that there is no
suggestion of inequality of bargaining power or market failure in this case.
[123] Policy factors also point strongly against there being a duty of care in this
case. These are sophisticated commercial parties capable of looking after their
own interests. The Courts have no need to interfere in bargains they have freely
arrived at.
[124] The only factor that we have not taken into account in this balancing
exercise is the extensive dialogue between Carter Holt and Rolls-Royce, both
before and after the contracts were entered into. The question would be whether
this factor alone could outweigh all of the others. We would not have thought so
but it is not appropriate for us to decide this as we did not hear argument
specifically directed to it. The answer may depend on whether Junior Books, as it
has been explained in later United Kingdom cases, is part of New Zealand law
and, if so, whether the dialogue between the parties caused the test to be
satisfied.
[127] For the reasons given earlier, we consider that the claim must be struck
out to the extent that it is pleaded as a duty to take reasonable care to perform
P a g e | 21
the contract. Even where it is not pleaded in this manner, the claim must be
struck out, except to the extent that the duty pleaded rests on the alleged
negligent statements made by Rolls-Royce to Carter Holt, both before and after
the entry into the contracts. In case we have not already made this clear, Junior
Books in its wider manifestation is not, for cases of this nature, part of New
Zealand law.
(note: both parties accepted, and the court appeared to endorse, that a
“Hedley Bryne claim” could not be struck out. The claim was not
discussed in judgment.)
Wednesday: Couch
Case Law
South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 (CA) . 37
Facts: These two proceedings came before the Court of Appeal in different ways. The first (South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd) was an appeal against a judgment of the High Court ordering that a cause of action alleging negligence against various of the respondents be struck out. In the second case (Mortensen v Laing) the Master refused to strike out similar allegations. An application to the High Court for review of that decision was removed by consent into the Court of Appeal, being treated as if it were also an appeal. Both matters were heard together. In the first matter, South Pacific and Pogoni (claiming respectively to be an unsecured creditor and principal shareholder of Elite Apparel Ltd) issued proceedings claiming damages against New Zealand Security Consultants & Investigations Ltd (Security Consultants) and Morley and Thoreau, who were respectively a director and an employee of that company. They alleged breaches of a duty of care owed to them by those parties in investigating and reporting to Elite's insurer about the origins and causes of a fire which destroyed that company's property; and that as a result of the wrong advice it received from them, the insurer refused to indemnify Elite. That company subsequently sued the insurer under the policy. Its claim was settled by receivers appointed by a secured creditor. In the present proceeding, South Pacific also advanced claims against the receivers in respect of that settlement. Further, Pogoni claimed damages
P a g e | 22
for defamation arising out of the publication of the investigators' reports. In the second matter, Mr and Mrs Laing claimed under a fire policy for losses arising from a fire at their business premises. They alleged that the insurer refused to pay because of Mortensen's breach of duty of care to them in carrying out his engagement to inquire and report to it on the causes of the fire. They alleged that as a result of his advice, Mrs Laing was convicted of arson, which conviction was later set aside on appeal. They claimed from Mortensen the value of the stock destroyed in the fire and loss of profits and the legal expenses incurred in defending the criminal prosecution, and general damages to $250,000. Both applications were dealt with on the assumption that the plaintiffs could make good the facts alleged in their statements of claim. The basic issue in each was whether a duty of care was owed to them by an investigator engaged by the insurer to investigate and report to it on claims under the policies.
Issue: Is D negligent ?
Held: 1 It was well established that the discretion to strike out is one to be sparingly exercised, and would be justified only, if on the material before the Court and in the present state of evolution of the common law, the case as pleaded was so clearly untenable that the plaintiff could not possibly succeed. If the Court was left in doubt whether a claim might lie, or if disputed questions of fact arose, the case must go to trial. If the claim depended on a question of law capable of decision on the material before the Court, the Court could determine the question even though extensive argument might be necessary to resolve it. Both cases were appropriate subjects for a striking-out application which could, if successful, eliminate a lengthy trial of the clearly untenable causes of action (see p 305 line 6, p 311 line 36).
2 When a duty of care issue arose in a situation not clearly covered by existing authority, the proper approach was to look at all the material facts in combination, in order to decide whether as a question of mixed law and fact, liability should be imposed. The ultimate question is whether in the light of all the circumstances of the case it was just and reasonable that a duty of care of broad scope was incumbent on the defendant. This was an intensely pragmatic question requiring most careful analysis. It was helpful to focus on two broad fields of inquiry. The first was the degree of proximity or relationship between the alleged wrongdoer and the person who had suffered damage. That involved consideration of the degree of analogy with cases in which duties were already established and reflected an assessment of the competing moral claims. The second was whether there were other policy considerations which tended to negative or restrict - or strengthen the existence of - a duty in that class of case 3 In the South Pacific matter, the claimed duty of care was not present. Even if the investigators owed a duty of care to the insured, such a duty would not
P a g e | 23
extend to persons financially interested in the insured 4 (per Cooke P, Richardson and Hardie Boys JJ, and Sir Gordon Bisson, Casey J dissenting) In the Mortensen matter there was undoubtedly a close proximity between the investigator and the insured; however (per totam curiam) there were weighty policy considerations telling against a duty of care. These included the fact that there already existed a remedy available to the insured in contract to recover under the policy. Further, to allow the duty of care asserted would cut across established principles of law in fields other than negligence
Implication: .
Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) 39
Facts: Carter Holt Harvey Ltd (Carter Holt) contracted with the Electricity Corporation of New Zealand Ltd (the ECNZ), the predecessor of Genesis Power Ltd (Genesis), to procure (acquire) the design, manufacture, construction, purchase and installation of a cogeneration plant at Carter Holt's Kinleith mill (the cogeneration contract). Shortly afterwards the ECNZ contracted with Rolls-Royce New Zealand Ltd for Rolls-Royce to design, construct and commission the plant (the turnkey contract). The cogeneration contract was entered into on the basis that Rolls-Royce would be the subcontractor, but there was no direct contractual relationship between Carter Holt and Rolls-Royce. Carter Holt complained that the plant was defective and did not conform with the contractual specifications for construction and installation. It issued proceedings against Genesis alleging breach of the cogeneration contract, and against Rolls-Royce in negligence, alleging that Rolls-Royce had breached a duty to perform its contractual obligations with Genesis. Rolls-Royce applied to strike out the claim on the basis that such a duty is not recognised in tort in New Zealand. The Master declined the strike-out application, as did a Judge on review. Rolls-Royce appealed to the Court of Appeal.
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Issue: Is D negligent ?
Held: 1 The question when deciding whether a duty of care should be recognised in New Zealand was whether, in the light of all the circumstances of the case, it was just and reasonable that such a duty be imposed. There were two broad fields of inquiry. The first was as to the degree of proximity or relationship between the parties. The second was whether there were other wider policy considerations that tended to negate, restrict or strengthen the existence of a duty in the particular class of case. The proximity inquiry was concerned with the nature of the relationship between the parties. It was more than a simple question of foreseeability and involved consideration of: (i) the degree of analogy with cases in which duties were already established; (ii) balancing the plaintiff’s moral claim to compensation for avoidable harm and the defendant’s moral claim to be protected from undue restriction on its freedom of action and from an undue burden of legal responsibility; (iii) the extent to which the plaintiff’s position was vulnerable having regard to whether the defendant’s special skills created power over a vulnerable plaintiff; (iv) whether there were or realistically had been other remedies for the plaintiff; (v) the nature of the loss. The Courts were less willing to impose a duty of care in cases of economic loss than where there was physical damage to property; and (vi) the statutory and contractual background in defining the relationship between the parties which could point, depending on the circumstances, both towards and away from a finding of proximity (see paras [58], [59], [60], [61], [62], [64]). 2 There was no duty in tort to take reasonable care to perform a contract. Such a duty was essentially contractual in nature and could not be owed to one who was not a party to the contract (see para [66]). 3 Even if the claim in negligence were amended to plead a duty to take reasonable care in or while performing a contract, policy considerations would militate against the imposition of a duty of care. There was a need for commercial certainty. The Court should not interfere in risk allocations negotiated and paid for by the parties, particularly in commercial contracts. This was a commercial construction case and the parties had chosen to clearly define their obligations by detailed contracts. There was no duty of care owed by Rolls-Royce to Carter Holt except to the extent that the duty pleaded rested on alleged negligent statements made by Rolls-Royce to Carter Holt both before and after entry into the contract. The dispute-resolution mechanisms were different in the two contracts, with an arbitration clause in the turnkey contract. There were limitation clauses in both contracts. Carter Holt had only paid for what was to be provided under its contract and should not be able to improve on its bargain by suit. These were sophisticated commercial parties capable of looking after their own interests and the Courts had no need to interfere in bargains they had freely arrived at. 4 Notwithstanding the principle that consideration of whether a novel duty
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of care existed should normally wait until trial, where the claim depended on a question of law capable of decision on the material before the Court, then the Court should determine the question 5 There was no jurisdiction to hear the cross-appeal. The finding that Rolls-Royce was not liable to Carter Holt for any indirect or consequential losses was a preliminary finding only and there was no final ruling (see para [138]). 6 It was not appropriate to deal with categories of damages in the abstract without evidence. The strike-out application by Genesis would be declined (see para [154]).Rolls-Royce appeal allowed; cross-appeal by Carter Holt dismissed; strike-out application by Genesis declined.
Implication: .
Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 . 41
Facts: Bell had been convicted of aggravated robbery of a petrol station and sentenced to imprisonment. He was released on parole and, owing to the workload in the South Auckland probation office, was allocated to a relatively junior probation officer. The probation officer allowed Bell to take up employment at the Panmure Returned Services Association (the RSA), where there were large quantities of cash and alcohol available. The RSA management was not told the details of his criminal record. Bell left employment at the RSA but early one morning arrived there with accomplices and entered the premises and in the course of stealing property murdered three members of staff who happened to be there and severely injured another, Ms Couch. She and the estates of the murder victims began proceedings against the Attorney-General on behalf of the Department of Corrections alleging negligence and claiming exemplary damages. The Attorney-General applied for the actions to be struck out on the ground that there was no duty of care to the plaintiffs and was successful in the High Court and Court of Appeal. Ms Couch alone appealed to the Supreme Court.
Issue: Is D negligent ? (whether the defendant is under a duty of care to the plaintiff ?)
Held: 1 It was arguable that the Department owed a duty of care to the plaintiff. The claim was not therefore to be struck out on the basis that no
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duty of care could possibly be owed. Whether there was sufficient proximity between the plaintiff and the Department depended: (per Blanchard, Tipping and McGrath JJ) `\The necessary risk had to be distinct, in the sense of being clearly apparent, and special in the sense that the plaintiff’s individual circumstances or membership of a necessary class rendered her particularly vulnerable to suffering harm of the relevant kind from Bell; (per Elias CJ and Anderson J) on a broad inquiry without controlling emphasis on the plaintiff’s membership of a sufficiently delineated class (see paras [4], [66], [112], [113]). 2 (per Blanchard, Tipping and McGrath JJ) If proximity could be established the plaintiff had to show that policy issues did not militate against a duty of care. The policy arguments against recognising a duty of care had force, but the case for such a duty could not be found, at this stage, to be unarguably precluded as a matter of policy (see paras [126], [129], [130]). 3 (per Blanchard, Tipping and McGrath JJ) The physical proximity of Bell to fellow employees, the nature of the business including the presence of cash and alcohol and the nature of the offence for which Bell was on parole did not give rise to the required special risk, whether individually or in aggregate. There were, however, factors which, if pleaded, would give rise to an arguable case for proximity (see paras [122], [124], [125]). 4 The appeal would be adjourned to enable the Court to hear argument on the questions raised by the parties relating to exemplary damages (see para [1]).
Implication: .
The exam question.
Recommended