Exercise 2B. Constructing a Rule
One of the things that makes Law so unique as a subject to study at university is that it combines so many other subjects within it. For example, we have already seen one area of law – the law on judicial review – that raises fundamental political issues about how we are ruled, and by whom. (See Exercise 1C.) And insofar as the law has a role to play in compelling us to act morally (see Exercise ID), lawyers have to be interested in moral questions of how we should treat other people, and ethical questions as to how we should live. It might come as no surprise that studying Law also requires the study of political, moral and ethical issues. What might come as a surprise is that a lot of the time, law students have to act like scientists – indeed, it used to be fashionable to talk about the ‘science of law’ and even today Law as a subject is often classified as a ‘social science’ subject.
The reason why law students often have to act like scientists is that if they are often required to give their opinion on what the law says on a particular issue. You might think that this just requires that we look the law up in a book and see what it says on that issue. But things are not so simple within English law, where so much of the law emerges from judicial decisions. When a judge decides a case he or she is simply concerned to decide that case. And when we look at the judge’s decision in a particular case, and try to discover what she thought the law says on the issue she had to decide, we often have to resort to a guesswork and inference.
For example, suppose the case was one where a defendant caused a claimant to suffer what we lawyers call pure economic loss – that is a monetary loss that doesn’t result from the claimant’s being physically injured or having his property damaged. (An example of someone suffering pure economic loss would be where C is held up in a traffic jam caused by D and C misses an important meeting with a potential client, and consequently loses the chance to do business with that client.) So the claimant was suing the defendant for compensation for the pure economic loss that the defendant caused her to suffer. And suppose the judge finds in favour of the claimant, and holds the defendant liable to compensate the claimant for the loss she has suffered. Even though we know the result, what we really want to know is why the judge reached the decision she did – because it’s the why that will tell us what she thought the law said in this area. But it will almost always be a matter of debate as to why the judge reached the decision she did.
One person could say, ‘Well, she mentioned factors A, B, and C in holding the defendant liable for causing the claimant to suffer loss, so maybe she thought the law says that if A, B and C are present, then the defendant is legally required to pay compensation to the claimant.’ Another person could say, ‘Well, yes she did mention C, but it’s quite obvious it was the presence of factors A and B that were motivating her decision so the rule is that if A and B are present, then compensation will be payable.’ And a third person could say, ‘Well, I think C was quite an important factor in her decision, but what you are both missing is that she wouldn’t have held the defendant liable if factor D had been present. So the real rule is that if A, B and C are present and D is not, then the defendant is legally required to pay compensation to the claimant.’ And all of these views will seem equally plausible.
Given this, it’s amazing that we are able with any confidence to make any statements about what English law says on a particular issue, where the only available information about what the law might say on that issue comes from what’s called ‘case law’ – judicial decisions. But this is where the science comes in. The way we proceed in trying to determine what English law says on a particular issue which isn’t governed by a statute which ‘lays down the law’ on that issue is that we take all of the judicial decisions relevant to that issue, and we try to construct a rule that makes sense of all of those decisions. So it is as if the judicial decisions are a set of data points that we have been supplied with, and we are trying to come up with a rule that explains all of those data points. Normally, the attempt to construct a rule that makes sense of all the judicial decisions will not work – there will be a couple of ‘outlier’ decisions that we can’t explain along with all the other decisions, and we just have to reject those as ‘wrongly decided’. But our rule will be good enough if it explains almost all of the decisions. (A former Professor of Civil Law in Oxford, Peter Birks, used to give his student 30 cases to explain and would tell them, ‘You can say that one of them is wrongly decided – but not more than one.’)
If there is only one rule that is good enough to explain almost all of the cases, then we can be pretty confident that that rule represents the law in England on the issue we are looking at. But it might be that we can come up with more than one rule that is good enough. In other words, it might be possible to come up with more than one explanation of the outcome of almost all of the judicial decisions we are trying to explain. In such a case, we have to say that it is uncertain what the law says on the issue we are looking at: the cases support a variety of interpretations.
This exercise requires you to construct a rule that will be good enough to explain the results in the following cases, all of which involved a claimant suing a defendant for compensation for some form of pure economic loss that the defendant’s carelessness caused the claimant to suffer. Read through the summaries of the cases (which are arranged in chronological order), and then consider the alternative rules that are offered to you below as possible explanations of those cases, and decide what rule (or rules) are good enough to explain almost all of the outcomes of those cases.
A. Cattle v Stockton Waterworks Co (1875). Claimant’s building work on T’s land was disrupted by a flood of T’s land caused by the defendant’s carelessness, with the result that the claimant’s work was delayed and he made less money from the job than he would otherwise have done. Held: claimant could not sue the defendant.
B. Simpson & Co v Thomson (1877). The claimant insured T’s property against being damaged. The property was damaged as a result of the defendant’s fault with the result that the claimant had to pay out on the insurance policy with T. Held: claimant could not sue the defendant.
C. Société Anonyme de Remourquage à Hélice v Bennetts (1911). The claimant tug owner was going to earn a fee for towing T’s ship into port when T’s ship was sunk as a result of the defendant’s negligence, thus preventing the claimant earning his fee. Held: the claimant could not sue the defendant.
D. Hedley Byrne & Co Ltd v Heller & Partners (1964). The claimant was a firm of advertising agents that was approached by T with a view to the claimant’s advertising T’s services. As this would have involved the claimant spending money on placing adverts for T and then being reimbursed for its expenses by T, the claimant approached T’s bank, the defendants, to see if T had sufficient funds to reimburse the claimant for the expenses it would incur on T’s behalf. On being assured by the defendants ‘without responsibility’ that T did, the claimant placed the adverts but then discovered that T could not afford to reimburse the claimant’s expenses. Held: the claimant could not sue the defendants because the defendants’ careless advice that T was good for the money the claimant was going to lay out on T’s behalf was given ‘without responsibility’; but had the defendants given their advice without that qualification, they would have been held liable.
E. Weller & Co v Foot and Mouth Disease Research Institute (1966). A virus causing foot and mouth disease escaped from defendants’ premises due to the defendants’ carelessness and caused an outbreak of foot and mouth disease in area with the result that the claimants’ business as cattle auctioneers was temporarily suspended. Held: the claimants could not sue the defendants for compensation for the business losses that the defendants’ carelessness had caused them to suffer.
F. Spartan Steel & Co Ltd v Martin (1973). The defendants carelessly cut through a power cable in the street. The power cable supplied power to the claimant’s factory, and the consequent power cut meant that the factory could not operate for 14 hours. Held: the claimant could not sue the defendant for compensation for the business losses resulting from the factory being inoperative for 14 hours.
G. Simaan General Contracting Co v Pilkington Glass Ltd (No 2) (1988). Claimant was a contractor who had been given the job of constructing a building in Saudi Arabia. The building was to include a green glass curtain wall. The claimant sub-contracted the job of constructing the wall to T. T obtained the glass panels for the wall from the defendants, but due to the defendants’ carelessness the green panels supplied by the defendants were not the right shade of green. As a result, the fee payable to the claimant for constructing the building was reduced. Held: the claimant could not sue the defendants for compensation for the money it lost as a result of the defendants’ carelessness.
H. D & F Estates v Church Commissioners (1989). The defendants constructed a block of flats and the claimant subsequently acquired one of the flats in the block. As a result of the defendants’ carelessness in constructing the block of flats, the plasterwork in the claimant’s flat started deteriorating after the claimant moved. Held: the claimant could not sue the defendant for compensation for the money it would have to spend putting the plasterwork right.
I. Smith v Eric S Bush (1990). The claimant was proposing to buy a house, at the bottom end of the market as the claimant was not very well off. He approached T for a mortgage to help him buy the house. T had the defendant firm of surveyors inspect the house to see whether it was worth at least the purchase price, so that if the claimant didn’t keep up the repayments on his mortgage, T would be able to recoup the money it lent the claimant by selling the house. The defendant reported back to T that the house was worth the purchase price, carelessly failing to spot fundamental defects in the way the house had been constructed which made it worth a lot less than the claimant was proposing to pay for it. T informed the claimant that his application for a mortgage had been approved. The claimant rightly guessed that this meant that T’s surveyor had thought there were no problems with the house, and as the claimant was not very well off, he did not get his own surveyor to look at the house. As a result, he purchased the house for far more than it was actually worth. Held: the claimant could sue the defendant for compensation for the money he had lost as a result of purchasing the house.
J. Spring v Guardian Assurance (1995). The claimant was turned down for a job working in the life insurance industry when he was given a bad reference by the defendant, his former employer. The reference was unnecessarily bad and had been carelessly prepared. Held: the claimant could sue the defendant for compensation for depriving him of the chance of getting a job.
K. White v Jones (1995). T decided to make a new will under which the claimants, T’s daughters, would have inherited £9,000 each. T asked the defendant firm of solicitors to prepare the will. The defendants carelessly delayed in preparing the will and T died before it could be signed and witnessed. Held: the claimants could sue the defendants for compensation for the money they would have obtained under the will that T would have made in favour had the making of that will not been delayed due to the defendants’ fault.
L. Welton v North Cornwall District Council (1997). The claimants owned a guest house. The defendant health inspector advised the claimants that they would have to make various alterations to their kitchen if they were not to violate various health and safety regulations. This advice was wrong, and the defendant should have known that. As a result of getting this advice, the claimants made numerous, and completely unecessary, alterations to their kitchen. Held: the claimants could sue the defendant for compensation for the money they had needlessly spent improving their kitchen.
M. Williams v Natural Life Health Foods Ltd (1998). The claimants were interested in opening a health food shop in Bristol. They went to a health food company for advice as to how successful such a shop might be. They received a report, that had been prepared by the defendant, which said that the shop the claimants were proposing to open should be very successful. This was incorrect, and the defendant should have known that. On the strength of the report, the claimants invested a lot of money in opening a health food shop in Bristol and lost their investment. Held: the claimants could not sue the defendant for compensation for the money they lost relying on his overly optimistic projections as to how well their shop would do.
N. Islington LBC v University College London Hospital NHS Trust (2005). The claimant local authority spent a lot of money caring for a person who had suffered a stroke as a result of the defendant hospital’s negligence. Held: the claimant could not sue the defendant for the money it had spent caring for the stroke victim.
O. WBA v El-Safty (2005). Due to the defendant doctor’s negligence in treating a professional footballer’s injury, the footballer had to retire from the game. Before his injury, the footballer played for the claimant football club, and they had to spend money buying a replacement for him. Held: the claimant could not sue the defendant for compensation for the financial loss it had suffered as a result of the defendant’s carelessness.
P. Customs and Excise Commissioners v Barclays Bank (2007). The claimant was suing T. The claimant feared that T might transfer the funds in his UK bank account abroad, with the result that even if the claimant won his case against T, he would not be able to enforce the judgment in his favour properly. So the claimant obtained a ‘freezing order’ over T’s bank account, which should have had the effect of stopping T taking any money out of it until the claimant’s case against T had been decided. T’s bank account was held with the defendant bank, and due to the defendant’s carelessness, it allowed T to take money out of his account after the ‘freezing order’ had been issued. The result was that when the claimant won his case against T, he was not able to enforce the judgment against T effectively as T did not have enough funds within the UK to cover the judgment that had been made against T. Held: the claimant could not sue the defendant bank for compensation for the loss it had suffered as a result of the defendant bank’s carelessly allowing T to empty his account with the defendant bank.
Having read through these summaries, consider which – if any – of the following rules provides a good enough explanation of the results in the above cases. (In each statement of the rule, C stands for ‘claimant’, D for ‘defendant’ and we assume that D has carelessly caused D to suffer some form of pure economic loss.)
C will be allowed to sue D for compensation for the loss she has suffered if:
(1) D caused her to suffer that loss through words rather than actions.
(2) D caused C to suffer that loss directly rather than indirectly by, for example, injuring someone else or damaging some item of property that did not belong to C.
(3) D knew, or should have known, that C would suffer that loss as a result of what he did, and there is no good reason why he should not be held liable for that loss.
(4) D knew, or should have known, that C was at special risk of suffering some kind of loss as a result of what he did.
(5) D knew, or should have known, that C was at special risk of suffering a real serious form of economic loss as a result of what he did.
(6) C could not have taken any steps herself to protect herself against suffering the loss that D caused her to suffer, and D knew, or should have known, this.
(7) D and C were in direct contact with each other.
(8) C was relying on D not to be careless.
(9) D told C that she could rely on him to take care, and she did so.
(10) Either (5) or (9) apply.
To do this exercise, it might help to draw up a table, as follows:
Put ticks or crosses in the clear boxes, according to whether a particular rule (1) – (10) can explain or cannot explain the result in a particular case A – P. Which rule, or rules, emerges as providing a good enough explanation of the results in cases A – P?
Next page: Exercise 2C. Reading a Case