TORT ACTIONS IN CONTRACTUAL SITUATIONS: RECENT DEVELOPMENTS

• Date: 01 December 1990
• Author: F.M.B. REYNOLDS
• Published date: 01 December 1990
• Citation: (1990) 2 SAcLJ 251

Ladies and Gentlemen, it is a great honour and pleasure to be in Singapore again. I am absolutely amazed that anyone should ask me to speak here yet again. I think this is the sixth year that I have been here consecutively; and every year I have addressed some gathering of this sort — though I appreciate that this particular body has not existed on the previous occasions. So I should have thought most of you here would have had enough of me; but it seems that there are some who are not yet completely exhausted, and, as I say, it is a great pleasure to me.

Two reservations before I start. You have I hope a handout which I have prepared. Now the first thing I want to say is that I am not really a torts specialist — my own interest is in contract — but I was asked to do a talk on this subject. I actually gave a lecture on it in New Zealand in 1984, just after my first visit here, and so I was quite interested in updating that. But I basically am a contracts man and I seek to look at the tort actions so to see where they fit into the contractual framework. So I view matters from the contractual side.

The second warning is that the paper which I have given you is really very full and there is much too much to get through at any reasonable speed during this afternoon. When I showed my synopsis in Australia to professor of tort law, Professor Trindade, whom some present will know, he said, “You’ll never get through this in an hour.” Well, in a sense I shall not. I have summarised the information, the case law, of which I know. What I propose to do is to talk to that paper, and therefore I shall go through some of it really quite rapidly, on the basis that it is there, and that if you want to go further into it, you can do so in your own time, in some other place at some other time.

Differences in Tort Action.

The first heading on my handout, called “Differences in tort action”, is just a list of the circumstances in which tort actions may give different results from contract actions: an attempt to list the reasons for suing in tort in what I call a contract situation. I start off with the obvious one which is that limitation periods may differ in accordance with whether you are suing in contract or tort. In contract, the limitation period should run from the time when the contract is broken; in tort, from the time when the tort is committed.

When is the contract broken? That will vary of course in accordance with the contract and the breach. But, for instance, in the supply of goods, the

contract is broken in general when I supply you with the defective goods. These are, however, other situations. In the case I have given you, Midland Bank Trust Co. v. Hett, Stubbs & Kemp[1979] Ch. 384 a solicitor failed to register an option, and it was argued that the breach occurred when he failed to register it. The judge, Mr. Justice Oliver, (now Lord Oliver, who spoke here last year) was able to say that there was a continuing breach for all the time when he was not registering the option. So even this is not that easy.

In the case of tort, the tort in general only exists when the damage is suffered. This is not true of course of all torts — it would not be true of conversion, for example. So the tort comes into existence when the damage is suffered, not necessarily when it is known of. I refer you here to the Pirelli case [1983] 2 A.C.I, which is one of the well-known building construction cases involving cracks in foundations and so forth, where the court holds that the limitation period can run in tort from when the damage occurs, even when the person concerned does not know of it, subject in England to our Latent Damage Act. That will be physical damage, so we then start looking to see when cracks occur or may be assumed to occur in the foundations of buildings, which is a very unrealistic exercise, I believe, even in this context, and even more unrealistic in others.

As to economic loss: I suppose that the loss is suffered when somebody actually feels it, that is to say when he discovers he is suffering a loss; and then at that point he himself loses money. I suppose that the period begins from that moment. That is limitation.

Then damages. Of course, contract damages are based on the notion of contemplation, risks undertaken; tort damages are based merely on foreseebility, and so the threshold of foreseeability is rather lower in tort than the ‘contemplation’ threshold in contract. I do not think you get very much difference here because of decisions holding that, if what you are suing for is consequential physical damage, even though you sue in contract, you are entitled to the benefit of the tort rules. The case which I have given you is Parsons & Co. Ltd. v. Uttley Ingham & Co. Ltd.[1978] Q.B. 791 which is about a breach of contract involving negligence in the installation of a hopper holding pig food, causing physical damage to the pigs. The rule applied was very much like that in tort. So also in contract, you can sometimes sue for your reliance loss even though actually you would not have made any profit. So maybe there is not much difference there, though the possibility of difference should not be excluded.

Thirdly, of course, if you sue in tort you may perhaps avoid exclusion clauses operating in the contract. I shall say more about that later and so leave it now.

Fourth, contributory negligence. I will take tort first here. In tort if the plaintiff is also negligent, the effect of statute is that the damages can be apportioned. So there is apportionment by statute in tort actions. In contract, if the plaintiff is negligent this may mean that he caused his own loss. So everything in contract turns on causation and in general there is no statutory power to apportion. We then have a problem recently arising, as to whether the apportionment statute applies in contract. I have given you a case with a Norwegian name, Forsikringsaktieselskapet Vesta v. Butcher[1986] 2 All E.R. 488 where Mr. Justice Hobhouse, at first instance, drew a distinction between three types of contract breach: first, a negligent breach where the breach was also of a duty existing in tort; secondly, a negligent breach where the duty was to be careful but did not exist in tort; and thirdly, a breach of a contract duty which was not based on negligence at all. He said that in the first case, where you could sue in tort as well, then the apportionment statute will apply; in the third, where you could not, it would not apply; and the second was left uncertain. So the situation about apportionment in contract remains somewhat unclear, except when there is a clear overlap between a contract action and a tort action.

The fifth heading is a bit of a skittle for knocking down straightaway. It was arguable that the course of employment rule in tort made people vicariously liable for the torts of others more easily than the scope of authority rule in contract, which is based on the law of agency and requires some holding out or conduct by the principal under which he indicated that the agent was acting on his behalf. In the case called Armagas Ltd. v. Mundogas S.A. (The Ocean Frost)[1986] A.C. 717 the House of Lords has said there is no difference between the contract and tort tests as regards vicarious liability where torts of representation, that is to say of statements, are involved; though the case is only actually about deceit and I suppose one could argue that the statement as to overlap was confined to situations of deceit or fraud.

Now a couple of quick points. Sixthly, a right of action in tort is not very likely to be assignable, whereas a contract right is much more easily assignable. And seventhly, tort rights will be less easily proved in bankruptcy than contract rights.

Eighthly, jurisdiction clauses. Jurisdiction clauses in a contract — and arbitration clauses — will cover disputes under the contract; whether or not they cover disputes in tort will depend on their wording. So one cannot be sure they will cover disputes in tort arising out of a contract situation — there are quite a lot of cases on this. And so also in service out of the jurisdiction, a related point: the rules are, of course, different for contract and tort.

Ninthly, conflict of laws. Rules for the conflict of laws for contract are based on the law intended by the parties. The rules for the conflict of laws in tort are in general based on the location of the tort, the place where the tort was committed: though in some of the recent cases it becomes very difficult to know where the tort was committed, where for example there are international frauds. So the two types of claim may become a little more alike to each other. But, in general, the tort rule depends on where the tort was committed, with some input from the law of the forum.

Tenthly, suing the third party to a contract, for instance suing a subcontractor. You might want to sue a sub-contractor in tort because you had no privity of contract with him. You may also wish to sue (in effect) as a third party to the contract, as did the disappointed beneficiary in Ross v. Caunters[1980] Ch. 297 where the solicitor failed to advise the testator that the beneficiary should not witness the will.

Now, lastly and most pragmatically, there may just be practical objections to suing in contract. The contractual defendant may be difficult to get hold of, maybe in a different jurisdiction, may be insolvent, may be uncooperative, may be an associated company — all sorts of reasons may make one wish to look for a different defendant in tort. But of course one must bear in mind that in general when one does sue in tort one has to prove negligence, which would not necessarily be the case in contract. So there is a disadvantage to suing in tort for a start — you will almost always wish to sue in the tort of negligence and that involves proof of negligence, quite apart from duty of care problems.

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