Elements of the Tort of Negligence: Analytical Essay

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(1) The first element of the tort of negligence is the duty of care. An individual is not liable for every action they take, only to those whom they owe a duty of care to. Whether this duty of care exists is usually decided by the court on a case to case basis. The landmark case for a duty of care in the tort of negligence was Donoghue v Stevenson (1932) where the House of Lords ruled that a person may owe a duty of care to another with whom they had no contractual relationship to at all. This duty of care was extended to include financial loss as well as physical damage following the case of Hedley Byrne v Heller and Partners (1964). Over time the principle has developed following the case of Caparo Industries v Dickman 1990 which established a three stage test for establishing a duty of care that still stands today

The next element of the tort of negligence is a breach of that duty of care. After proving the defendant owed the claimant a duty of care, the claimant must next prove that the defendant was in breach of that duty and in consequence the claimant suffered loss, damage or injury. The requirements of the standard are closely dependant on circumstances. In general terms, the person concerned should do what a reasonable man would do. It is presumed that a reasonable man would take greater precautions if the risk of injury is very high, thus meaning when the risk is higher, more must be done for the defendant to meet their duty (Glasgow Corporation v Taylor 1992).

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The chain of causation is the next element of the tort of negligence. The key test for causation is known as the ‘but for’ test which asks would the loss, damage or injury have occurred ‘but for’ the defendant’s contribution. The leading case for the causation is Barnett v Chelsea and Kensington HMS. Causation can often prove problematic if there is more than one possible cause.

The final element is in relation to remoteness of damage. The law states that a person cannot be held liable for damage or loss suffered from an action if it is deemed too remote. It is important as it restricts a defendant’s liability for damage to those losses which they should reasonably have foreseen. It would be unjust for someone to be held liable for damage which, although they must have caused it, was unforeseeable and therefore impossible to prevent. The test of reasonable foresight developed out of the seminal case of The Wagon Mound (1961). If the claimant cannot prove that the damage is not too remote, then the claim will fail.

(2) A landmark case in the law for the tort of negligence was Caparo Industries v Dickman (1990). The claimants being shareholders in a company whilst the defendants being the company’s auditors. The claimants were relying on the audited accounts and purchased more shares with a view of launching a takeover bid. Having then taken over the company, it transpired the company had actually made a significant loss instead of the £1.2 million profit shown by the audited accounts. The House of Lords held that the requirements for a duty of care to exist were as follows:

  1. Was the harm reasonably foreseeable?
  2. Was there a relationship of proximity between the parties?
  3. Considering the circumstances, is it fair, just and reasonable to impose a duty of care?

The House of Lords concluded from the case that the defendants did indeed owe a duty of care to the shareholders as a whole, but that did not owe a duty of care to potential future investors or existing shareholders who planned to increase their shareholding, and thus the court found the defendant not liable. The first test of foreseeability questions whether the defendant’s actions could foreseeably cause damage, loss or injury to the claimant. A prime example of this test was in Palsgraf v Long Island Railroad Co 1928. Whilst the claimant’s injuries were indeed as a result of the defendant’s actions, the court however found it was found not foreseeable that the claimant would be injured and thus the defendant was found not liable. The next test questions the proximity between the defendant and claimant, but not necessarily in a physical nature, instead a relationship between the two. An example of a case failing the proximity test was in Alcock v CC of South Yorkshire 1991. Members of the public facing the aftermath of the Hillsborough disaster and suffering shock as a result were held not to be owed a duty of care because the link between the defendant and claimant was too distant. The final test questions whether it would be reasonable to impose this duty of care upon the defendant. If all three stages are successfully questioned and passed, the case can be said to satisfy the Caparo test and thus the duty of care can indeed exist.

(3) Even before the Caparo test was developed, the case law for a duty of care in the tort of negligence was consistent with what Caparo would later introduce. The key early case for the duty of care in the tort of negligence was Donoghue v Stevenson (1932) where the House of Lords ruled that a person may owe a duty of care to another with whom they had no contractual relationship to at all. In the case, the claimant had bought a bottle of ginger beer from a café for her friend. Her friend consumed some of the beer before finding it contained the remains of a decomposed snail, and then falling ill. The beer manufacturer argued that as there was contact between themselves and the person who consumed the beer, they did not owe a duty of care to the woman. The House of Lords refuted this, however. This case thus laid down the principle that every person owes a duty of care to their ‘neighbour’ to ‘persons so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected.’ This duty of care was extended to include financial loss as well as physical damage following the case of Hedley Byrne v Heller and Partners (1964). However, the judge in the Robinson v West Yorkshire 2018 case decided that while Caparo was still good law, it is no longer the standard test for the imposition of a duty of case, and instead the finding of a duty of care will depend on whether the instant case falls within a category of liability previously recognised by the law.

(4) As previously discussed, the third point of the Caparo test asks whether it would be fair, just and reasonable to impose a duty of care. Whilst this point is extremely vague, it can be thought somewhat as a ‘safety net’, allowing judicial discretion in cases where public policy might dictate that it would be unreasonable for a duty of care to be held to exist (Marc Rich & Co v Bishop Rock Marine Co Ltd 1995). Therefore, given this flexible nature of the third element in the Caparo test, I do believe the current case law approach to establishing the duty of care is reasonably fair.

  • (a) The directors of a company have a duty to prepare a directors’ report under s415 of the Companies Act 2006. It should increase the name of any persons who, at any time during the financial year, were directors at the company. It should also include the amount that the directors recommend should be paid in terms of dividends, if at all any. It should include a statement in respect of disclosures provided to the auditors. Finally, it should include a statement of any qualifying indemnity provisions for the benefit of any directors during the financial year.
  • (b) The Company Act 2006 confides seven general duties of directors, but of which is not an exhaustive list of all duties. S172 of the company act states directors have a duty to promote the success of the company, which includes factors such as the interests of the company’s employees and the likely consequence of the decision in the long term. S173 says directors have a duty to exercise independent judgement. S175 says directors have a duty to avoid conflicts of interest, which means they must avoid situations in which they have a direct/indirect interest which may conflict with the company’s interests. S176 says directors have a duty not to accept benefits from 3rd parties. Directors have a duty to declare interest in proposed transactions or arrangements with the company under S177. Finally, S171 says directors have a duty to act within powers.
  • ( c) The first ground by which a company can be wound up by the High Court in the United Kingdom is the company being unable to pay its debts, of which there are many definitions to. The next ground for a company being wound up is the company being a public company which was registered as such as on its original incorporation and the company has not been issued with a trading certificate under section 761 of the Companies Act 2006 and more than a year has expired since it was so registered. A company may also be wound up if it is proved to the High Court that the company’s total debts exceed its total assets. If it is proved to the High Court that the company cannot pay its debts when the fall due, they may also be wound up. Finally, a company may be wound up if the company does not commence its business within a year of incorporation or suspends its business for a whole year.
  • (d) Compulsory liquidation is initiated by one or more creditors, who apply to the court and must demonstrate that the company is unable to pay its debts. It falls under two possible scenarios, the first of which being a creditor for more than £750 has served the company a written demand for payment and in the next three weeks the company has neither paid this debt nor given security for its payment. The second possible scenario is the court being satisfied that the company’s assets are lower than the company’s liabilities. A company may also be liquated if a shareholder who is unhappy with the directors’ management of the company petitions to the court for the company to be wound up on the just and equitable ground. This is an uncommon scenario, but there are examples, such as Grays Inn Construction Co Ltd. An important issue arising on liquidation is the order of priority for allocating the company’s assets. This an especially important issue for creditors and shareholders as by definition an insolvent company cannot pay everything that is owed. Assets which are unavailable to the liquidator include assets subject to a fixed charge and those with retention of title clause. The order of distribution tends to be firstly winding up expenses, then preferential debts. Next is floating charges pre 15/09/03 and then floating charges post 15/09/03. Next is unsecured creditors before deferred creditors and then members. When a company goes into compulsory liquidation, the powers of its directors cease immediately, and they are dismissed from office (Measures Brothers Ltd v Measures 1910). A former director of a company being wound up may be asked to assist the liquidator and provide a statement of the company’s assets and liabilities (section 131 IA 1986). All employees of a company undergoing compulsory liquidation are automatically dismissed from the company, but they may be entitled to redundancy payment, as well as potentially being able to claim for damages.

(1) Under the doctrine of frustration, a promisor is relived of any liability under a contract agreement in the event of a breach of contract where a party to the agreement is prevented from, or unable to, perform their obligations under the agreement, due to some event which occurs, which was outside of their sphere of control. In these circumstances, the event which was out of anybody’s control was the trawler catching fire whilst returned for servicing. In these circumstances, it is deemed unfair to compel the injured party to follow out the contractual agreement and hence the law relives this person from their obligations by regarding the contract as ‘frustrated.’

(2) The doctrine of frustration discharges both parties from their obligations in their contract where following the contracted being agreed, performances of the contracted agreements becomes either impossible or radically different. Essentially, what the doctrine of frustration allows for is a remedy in case of a significant change in circumstances. The case which laid down the principle for the doctrine of frustration was Taylor v Cadwell 1963. Similarly, in that case to the case of UU and the trawler, the contract was frustrated as the subject matter of the contract was destroyed due to no fault of either party. The case brought about three key questions where asking should a contract be frustrated. Firstly, has the contract allocated the risk of the particular event occurring. Secondly, was there a radical change in obligations, and thirdly, was the radical change due to the fault of one of the parties. If one party is at fault for the event which has potentially frustrated the contract, then it is less likely the contract will actually be frustrated (The Super Servant Two 1990). However, I do not believe that in this case either party is at fault since it would seem the fire was out of both parties control. The effect of frustration on the control is that it brings the contract to an immediate end, whether or not either party wishes this to be the results, or in other words it is void, not voidable. The case of Hirji Mulji v Cheong Yue Steamship Co Ltd 1926 proved this point. Since some of the money has been paid in advance, it is possible the advance payments could be recovered if there was a total failure of consideration by the other party (Fibrosa SA v Fairbairn Lawson Combe Barbour). Section 1(2) of the Law Reform (Frustrated Contracts) Act also backs up this point that money already paid is recoverable, and money that is payable in the future need not be paid.

  • (a) The term corporate finance describes activities, decisions and techniques that deal with many aspects of a company’s finance and capital and the term tends to be associated with transactions in which capital is raised in order to grow or create a business. The first way that companies that raise finance is known as equity finance. This includes selling shares to investors, venture capital, taking on a partner or angel investors, among many other methods. The main advantage of this method of financing a company is that there is no obligation to repay the acquired money and thus placing no additional financial burden on the company. This also means the company has more capital available to invest in growing the business as there are no required monthly payments. The downside of equity financing is having to give away a percentage of your company to investors, meaning you have to share profits and consult with new partners when making decisions that affect the company. The only way to remove these investors in the future is to buy them out, which will likely be more expensive than the original investment they provided. Another way that companies can raise finance is known as debt finance, the most common example of which is bank loans. This can come with restrictions placed on the company’s activities that prevent it from taking advantages of opportunities outside the realm of its core business activity. There are numerous advantages associated with this type of financing, such as the lender having no control over your business. Once the loan is paid back, the relationship with the financer ends. Furthermore, the interest you pay on the loan is usually tax deductible. However, debt is an expense and you have to pay expenses on a regular basis and could hamper the company’s potential to grow should you hit a hard time, or the economy slows down. There are many factors a business should consider when choosing debt or equity finance, such as security available, business risk and the cost of finance.
  • (b) A fixed charge is a legal or equitable mortgage on a specific asset, such as land. This prevents the company from dealing with the asset without the mortgagee’s consent. A fixed charge is an identifiable asset, is intended to be retained in the business permanently, and the company has no freedom to sell the asset. In some circumstances, a fixed charge can be set aside by a liquidator if it can be shown that the company sought to put a creditor in a preferential position. A floating charge, as stated by the judge in Re Yorkshire Woolcombers’ association (1903), has three key characteristics. It is on a class of assets, present and future, the assets within the class will sometimes change, and the company has the freedom to deal with the charged assets in the ordinary course of its business. The key advantage of floating over fixed charges is that the company has the ability to freely deal with the assets, as well as a wider class of assets can be charged. The disadvantage however, is it having lower priority than fixed charges, and the value of the security being uncertain until it crystallises, which occurs upon liquidation or when a company ceases to carry on business.
  • (c ) As described from the case of Borland’s Trustee v Steel Bros & Co Ltd (1901), a share is the “interest of a shareholder measured by a sum of money, for the purpose of a liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all shareholders.” A shareholder is someone who is a member of the company and thus has voting rights, depending on the class of shares held. They are also entitled to dividends depending on the availability of profits. Loan capital conversely comprises of all the longer term borrowing of a company, such as bank overdrafts and loans secured against assets. A type of long term loan often issued by companies is known as debentures, which is a document issued by the company containing an acknowledgment of its debt whether charged on the company’s assets or not, such as described in the case of British India Steam Navigation Co v IRC (1881).In India, the company act 1956 section 2 (12) defines debentures as “including debenture stock, bonds, and any other securities of a company whether constituting a charge on the Company’s assets or not.” Unlike shares, those holding debentures are not part of the company and thus have no voting rights. Debentures have a contractual right to interest, irrespective of the availability of profits, unlike shares. Capital does not need to be maintained in loan capital, whilst it does in share capital.

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