Aspects of Contract and Negligence for Business
Table of Contents
Task 1 (AC3.1)1
Task 2 (AC3.2)2
Task 3 (AC3.3)3
Task 4 (AC4.1)4
Task 5 (AC4.2)5
LO 3 Understand principles of liability in negligence in business activities
Task 1 (AC 3.1)
Liability in Tort
Task 2 (AC3.2)
Negligence is a failure to use reasonable care that results in harm to another party.
There are four important elements to a negligence lawsuit that must be proven:
- The defendant owed a duty, either to the plaintiff or to the general public
- The defendant violated that duty
- The defendant’s violation of the duty resulted in harm to the plaintiff
- The plaintiff’s injury was foreseeable by a reasonable person.
Donohughe V Stevenson (1932)
This famous case established the civil law tort of negligence and obliged manufacturers to have a duty of care towards their customers. The events of the complaint took place in Scotland in 1928, when Ms May Donoghue was given a bottle of ginger beer, purchased by a friend. The bottle was later discovered to contain a decomposing snail. Since the bottle was not of clear glass, Donoghue was not aware of the snail until she had consumed most of its contents. She later fell ill and was diagnosed with gastroenteritis by a doctor. Donoghue subsequently took legal action against the manufacturer of the ginger beer, Stevenson. She lodged a writ in the Court of Sessions (Scotland’s highest civil court) seeking £500 damages.
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Because her friend had purchased the drink, Donoghue could not sue on the basis that a contract had been breached; her lawyers instead had to claim that Stevenson had a duty of care to his consumers and that he had caused injury through negligence – an area of civil law that was largely untested at that time. Stevenson’s lawyers challenged the action on the basis that no precedents existed for such a claim. However Donoghue was later granted leave to appeal to the House of Lords, which then had the judicial authority to hear appellate cases. The leading judgement, delivered by Lord Atkin in 1932, established that Stevenson should be responsible for the well-being of individuals who consume his products, given that they could not be inspected. The case was returned to the original court; Stevenson died before the case was finalised and Donoghue was awarded a reduced amount of damages from his estate.
This case established several legal principles:
- Firstly, that negligence is a distinct tort. A plaintiff can take civil action against a respondent, if the respondent’s negligence causes the plaintiff injury or loss of property. Previously the plaintiff had to demonstrate some contractual arrangement for negligence to be proven, such as the sale of an item or an agreement to provide a service. Since Donoghue had not purchased the drink, she could prove no contractual arrangement with Stevenson – yet Atkin’s judgement established that Stevenson was still responsible for the integrity of his product.
- Secondly, manufacturers have a duty of care to consumers. According to Lord Atkin’s ratio decendi, “a manufacturer of products, which he sells … to reach the ultimate consumer in the form in which they left him … owes a duty to the consumer to take reasonable care”. This precedent has evolved and expanded to form the basis of laws that protect consumers from contaminated or faulty goods.
- Thirdly, Lord Atkin’s controversial ‘neighbour principle’. Here Atkin raised the question of which people may be directly affected by our actions, our conduct or things we manufacture. “You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems to be: persons who are so closely and directly affected by my act that I ought to have them in [mind] when I am I am [considering these] acts or omissions.”
Task 3 (AC3.3)
Vicarious liability is a situation in which one party is held partly responsible for the unlawful actions of a third party. The third party also carries his or her own share of the liability. Vicarious liability can arise in situations where one party is supposed to be responsible for (and have control over) a third party, and is negligent in carrying out that responsibility and exercising that control.
If an employee injures someone in the course of their employment, the employer may be subject to vicarious liability. This simply means that the injured person may be able to win compensation for the harm from the employer, rather than the employee.
This is not to say, though, that the employee can always count on getting away scot-free. Even if there is vicarious liability, the injured person does not necessarily give up any right he may have to pursue the employee individually. If, for some reason, the injured person is unable to get full compensation from the employer, then he might seek to recover the balance from the employee. In addition, the employer may well seek reimbursement for any amount paid to the injured person (although in practice this rarely occurs).
Generally, employers dispute vicarious liability claims on the following grounds:
The person who caused the harm was not an employee, but an independent contractor or other non-employee worker;
The employee did not harm the injured person in the course of the employee’s employment.
An illustration of the test is provided by two contrasting cases, [Limpus v London General Omnibus Company] and [Beard v London General Omnibus Company], both involving road collisions. In the former, a driver pulled in front of another rival omnibus, in order to obstruct it. Despite express prohibitions from the employer, they were found liable; this was merely an unauthorised mode of the employee carrying out his duties (driving), not an entirely new activity. By contrast, in the latter case, London General Omnibus Company were not liable where a conductor (employed to collect fares on board the bus) negligently chose to drive the vehicle instead; this was completely outside of his duties.
LO 4 Be able to apply principles of liability in negligence in business situations
A tort, in common law jurisdictions, is a civil wrong which unfairly causes someone else to suffer loss or harm resulting in legal liability for the person who commits the act. Although crimes may be torts, the cause of legal action is not necessarily a crime, as the harm may be due to negligence which does not amount to criminal negligence. The victim of the harm can recover their loss as damages in a lawsuit. In order to prevail, the plaintiff in the lawsuit must show that the actions or lack of action was the legally recognizable cause of the harm. The equivalent of tort in civil law jurisdictions is delict.
Tort law is different from criminal law in that: (1) torts may result from negligent but not intentional or criminal actions and (2) tort lawsuits have a lower burden of proof such as preponderance of evidence rather than beyond a reasonable doubt. Sometimes a plaintiff may prevail in a tort case even if the person who caused the harm was acquitted in an earlier criminal trial. For example, O.J. Simpson was acquitted in criminal court and later found liable for the tort of wrongful death.
Torts may be categorized in several ways, with a particularly common division between negligent and intentional torts. The standard action in tort is negligence. Negligence is a tort which arises from the breach of the duty of care owed by one person to another from the perspective of a reasonable person. The majority determined that the definition of negligence can be divided into four component parts that the plaintiff must prove to establish negligence. The elements in determining the liability for negligence are:
- The plaintiff was owed a duty of care through a special relationship (e.g. doctor-patient) or some other principle.
- There was a dereliction or breach of that duty.
- The tortfeasor directly caused the injury [but for the defendant’s actions, the plaintiff would not have suffered an injury].
- The plaintiff suffered damage as a result of that breach.
- The damage was not too remote; there was proximate cause to show the breach caused the damage.
Elements of Negligence
Proximate cause means that you must be able to show that the harm was caused by the tort you are suing for. The defence may argue that there was a prior cause or a superseding intervening cause. A common situation where a prior cause becomes an issue is the personal injury car accident, where the person re-injures an old injury.
Duty of care
It arises when one party creates a scenario that has the potential to harm the other party. Duty focuses on relationship between the two parties:
The test whether the defendant owes a duty of care to plaintiff includes:
- Would a reasonable person have foreseen that the actions would have caused harm to the plaintiff?
- Reasonable person represents an objective standard.
Breach of duty
Breach of duty occurs when a “reasonable person” is not exercising the degree of care that would have expected from him/her in that situation. Reasonable person is an average person. It does not require perfection, but takes into account that an average person does not foresee every risk. The average person is not assumed to be flawless, but ordinarily careful and prudent.
Actual harm could be in the form of physical or emotional injuries, property damages or financial loss.
The main remedy against tortious loss is compensation in ‘damages’ or money.
According to the scenario, Chris was in an internet cafe. He got up to purchase a coffee and was slipped on some water that was on the floor and broke his arm. This depends upon the intention of Chris. If Chris slipped intentionally and did foresee this accident, then the cafe’ will not be responsible for the damages caused. If this is not the case, then the elements of negligence need to be applied to see if Chris can claim the damages.
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Negligence is important aspect to look at, means that the defendant (the cafe’) failed to act in a reasonable manner under the circumstances. For example, it is reasonable to expect that the cafe’ placed a warning signs in recently mopped areas or wet surface. If this is not done, then it means that the cafe’ did not fulfil the duty of care. Chris can claim damages as a result of it as he slipped and broke his arm. There are various implications on the scenario in terms of duty of care, negligence (intentional or otherwise) and it is up to the court to decide the outcome.
Task 5 (AC4.2)
Two clear elements must be established in order to establish a vicarious liability:
- Was the tortfeasor the defendant’s employee; and
- Was the tortfeasor acting in the course of his or her employment at the time the tort was committed.
The existence of a relationship of employer and employee
- Many tests have been suggested for distinguishing between a contract of service and a contract for services. These include:
- Control test – Ready Mix Concrete Ltd v Minister of Pensions and National Insurance (1968)
- Integration test – Stevenson Jordan & Harrison Ltd v MacDonald & Evans (1952)
- Organisation Test – Albrighton v Royal Prince Alfred Hopital (1980)
“The ultimate question will always be whether a person is acting as the servant of another or on his own behalf and the answer to that question may be indicated in ways which are not always the same and which do not always have the same significance”.
Conclusion as to whether defendant is an employer or contractor.
- If the defendant is an independent contractor the employer can’t be vicariously liable for the acts of that contractor. The employer will only be liable (as a primary liability) if the employer’s tortious duty is, in law, non-delegable: Kondis v STA; Burnie Port Authority v General Jones Pty Ltd.
Was the employee acting within the course of employment?
General rule is that whilst acting in the course of employment the employer is not vicariously liable for independent wrongful acts of employees (Bugge & Brown).
In determining the scope of the employment relationship the actions of the employee must be reasonably incidental to employment i.e. the employer is not vicariously liable if the employee is on a frolic of their own (Joel v Morison).
(Situations to consider & the necessary authorities)
- Wrongful mode of completing authorised act – employer vicariously liable (Bugge & Brown)
- Express prohibition by employer not necessarily a defence if the employee’s act was still a mode of doing what he employee was employed to do – employer vicariously liable (Century Insurance Company v Northern Island Road Transport).
- Acting outside scope of employment relationship – employer not vicariously liable (Koorang Investments v Richardson).
For example, there are a number of truck driving cases where the court has had to decide whether the driver was acting within the course of his employment when driving the vehicle outside a designated route.
Essentially, the pattern seems to be that if the driver’s job is to get from Point A to Point B, and his detour from the designated route was simply another way of getting to Point B, then he is acting within the course of his employment.
On the other hand, if the driver takes a detour for some other, non-business purpose (such as picking up a girlfriend and taking her shopping) then he would likely be regarded as acting outside the course of his employment.
According to the scenario, Trevor is a driver who drives a lorry for a Haulage firm. He delivers deliveries for the company which suggests that he is an employee of the firm. Whilst at work, he detours the lorry and meets his girl friend. This is a non business purpose which means he is acting outside the scope of his duties. As he leaves his girlfriend’s house to continue deliveries, he negligently crashes into a car park.
As stated above, two conditions must be met in order to establish a vicarious liability:
- was the tortfeasor the defendant’s employee; and
- Was the tortfeasor acting in the course of his or her employment at the time the tort was committed.
In this case, the tortfeasor was Chris and the defendant is the Haulage firm. Chris was an employee and also he was acting in the course of his employment to meet his girlfriend and later on crashes his lorry. The vicarious liability is established and hence Chris is liable and not the haulage firm.
Tort Liability (2014). Available: http://www.legalmatch.com/law-library/article/tort-law-liability.html. [Last accessed 10 March, 2014]
Donoghue V Stevenson (1932). Available: http://lawgovpol.com/case-study-donoghue-v-stevenson-1932/. [Last accessed 12 March, 2014].
Negligence (2014). Available: http://www.lawyersandsettlements.com/lawsuit/negligence.html?opt=c&utm_expid=36075225.Uj6X3hD9S1KR79nt0Iy0tA.1&utm_referrer=https%3A%2F%2Fwww.google.co.uk%2F#.UySBAj9_sSM. [Last accessed 12 March, 2014]
Accidents and injuries (2014). Available: http://www.findlaw.co.uk/law/accidents_and_injuries/accident_claims/500045.html. [Last accessed 13 March, 2014]
Vicarious Liability (2014). Available: http://en.wikipedia.org/wiki/Vicarious_liability_in_English_law. [Last accessed 13 March, 2014]
Breach of duty (2014). Available: http://en.wikipedia.org/wiki/Breach_of_duty_in_English_law. [Last accessed 14 March, 2014]
Tort (2014). Available: http://en.wikipedia.org/wiki/Tort. [Last accessed 14 March, 2014]
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