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HOUSE OF LORDS HENDERSON AND
OTHERS, RESPONDENTS AND MERRETT SYNDICATES
LTD. AND OTHERS, APPELLANTS HALLAM-EAMES AND
OTHERS, RESPONDENTS AND MERRETT SYNDICATES
LTD. AND OTHERS, APPELLANTS HUGHES AND OTHERS,
RESPONDENTS AND MERRETT SYNDICATES
LTD. AND OTHERS, APPELLANTS FELTRIM
UNDERWRITING AGENCIES LTD. AND OTHERS, APPELLANTS AND ARBUTHNOTT AND
OTHERS, RESPONDENTS GOODA WALKER LTD.
(IN LIQUIDATION) AND OTHERS, APPELLANTS AND DEENY AND OTHERS,
RESPONDENTS CONJOINED APPEALS Authoritative report
at:
[1995] 2 A.C. 145 DATES: 1994 March 15, 16, 17, 22, 23, 24, 25, 28;
July 25 COUNSEL: Anthony Temple Q.C., John Rowland and Aidan
Christie for the appellants in the Merrett actions. Anthony Boswood Q.C., Stephen Moriarty and Marcus Smith for the
respondents. Geoffrey Vos Q.C., Jonathan Gaisman and David Lord for the
respondents in the Gooda Walker action. John Rowland and Kirsten Houghton for the appellants, the managing
agents in the Feltrim appeal Bernard Eder Q.C. and David Foxton for the appellants, the
members’ agents in the Feltrim appeal, and Bernard Eder Q.C. and
Christopher Butcher for the appellants, the members’ agents, in the
Gooda Walker appeal. SOLICITORS: Reynolds Porter Chamberlain; More Fisher
Brown; Elborne Mitchell & Co.; Clifford Chance; Richards Butler; Elborne
Mitchell & Co.; Wilde Sapte. JUDGES: Lord Keith of Kinkel, Lord Goff of Chieveley,
Lord Browne-Wilkinson, Lord Mustill and Lord Nolan THE MERRETT ACTIONS Appeal from the Court of Appeal by leave dated 28 February 1994 of
the House of Lords (Lord Keith of Kinkel, Lord Mustill and Lord Nolan) by the
appellants, who included Merrett Syndicates Ltd. and Merrett Underwriting
Agency Ltd., from the judgment dated 13 December 1993 and order dated 6 January
1994 of the Court of Appeal (Sir Thomas Bingham M.R., Hoffmann and Henry L.JJ.)
dismissing the appeal of the appellants from the judgment dated 12 October 1993
and order dated 8 November 1993 of Saville J., in favour of the respondents,
who included Ian McIntosh Henderson, William Hallam-Eames, and Elise Heckman
Hughes, investors at Lloyd’s. THE FELTRIM ACTIONS THE GOODA WALKER ACTIONS Appeals from the Court of Appeal by leave dated 28 February 1994
of the House of Lords (Lord Keith of Kinkel, Lord Mustill and Lord Nolan) arose
from the judgment dated 13 December 1993 of the Court of Appeal (Sir Thomas
Bingham M.R., Hoffmann and Henry L.JJ.) dismissing the appeals of the
appellants from the judgments dated 12 October 1993 of Saville J. in favour of
the respondents. In the appeal in the Feltrim actions, the appellants were
Feltrim Underwriting Agencies Ltd., who were managing agents only, and a number
of other underwriting agents, called in the proceedings the Feltrim
members’ agents. In the appeal in the Gooda Walker actions, the
appellants were a number of members’ agents called in the proceedings
the Gooda Walker members’ agents. The respondents were, or had been at
all relevant times, Names at Lloyd’s, or were the personal representatives
of deceased persons who had been Names at Lloyd’s at the relevant
times. The Gooda Walker managing agents took no part in the proceedings. [LORD KEITH OF KINKEL. Their Lordships do not wish to hear
argument on the question of absolute discretion.] 25 July. LORD KEITH OF KINKEL. My Lords, for the reasons set out in
the speech of my noble and learned friend, Lord Goff of Chieveley, which I have
read in draft and with which I agree, I would dismiss these appeals. LORD GOFF OF CIEVELEY. My Lords, Introduction The appeals now before your Lordships’ House arise out of
a number of actions brought by underwriting members (known as Names) of
Lloyd’s against their underwriting agents, in an attempt to recoup at
least part of the great losses which they have suffered following upon recent
catastrophic events, mainly in the United States of America, which have led to
unprecedented claims being made upon Lloyd’s underwriters. [*170] The actions in question form part of a large number of actions of
this kind, which are now approaching trial in the Commercial Court. At the root
of many of these actions lie questions of law, upon the resolution of which
depends the nature of the legal responsibility which rested upon underwriting agents
towards the Names for whom they acted. Accordingly, with the co-operation of
the parties to the actions out of which the present appeals arise, Saville J.
ordered that certain issues of principle should be decided as preliminary
issues. Having heard argument upon these issues, he gave judgment on 12 October
1993, his rulings being favourable to the contentions advanced on behalf of the
Names. On 13 December 1993, the Court of Appeal unanimously affirmed the
decision of Saville J., for the reasons given by him. The matter now comes
before your Lordships’ House, with the leave of the House; and the
hearing of the appeals has been expedited, in the hope that the fact that the
appeals have come before the House will result in as little disturbance as possible
to the programme now established for the hearing of the various
Lloyd’s actions in the Commercial Court. It is necessary for me now to identify, and place in their
context, the various issues which fall for consideration on these appeals. But
before I do so, it is desirable that I should first set out certain basic facts
about the structure of Lloyd’s, with special reference to the
relationship between Names and their underwriting agents. Every person who wishes to become a Name at Lloyd’s and
who is not himself or herself an underwriting agent must appoint an
underwriting agent to act on his or her behalf, pursuant to an underwriting
agency agreement. Underwriting agents may act in one of three different
capacities. (1) They may be members’ agents, who (broadly speaking)
advise Names on their choice of syndicates, place Names on the syndicates
chosen by them, and give general advice to them. (2) They may be managing
agents, who underwrite contracts of insurance at Lloyd’s on behalf of
the Names who are members of the syndicates under their management, and who
reinsure contracts of insurance and pay claims. (3) They may be combined
agents, who perform both the role of members’ agents, and the role of
managing agents in respect of the syndicates under their management. Until 1990, the practical position was as follows. Each Name
entered into one or more underwriting agency agreements with an underwriting
agent, which was either a members’ agent or a combined agent. Each
underwriting agency agreement governed the relationship between the Name and
the members’ agent, or between the Name and the combined agent in so
far as it acted as a members’ agent. If however the Name became a
member of a syndicate which was managed by the combined agent, the agreement
also governed the relationship between the Name and the combined agent acting
in its capacity of managing agent. In such a case the Name was known as a
direct Name. If however the Name became a member of a syndicate which was
managed by some other managing agent, the Name’s underwriting agent
(whether or not it was a combined agent) entered into a sub-agency agreement
under which it appointed the managing agent its sub-agent to act as such in
relation to the Name. In such a case the Name was known as an indirect Name.
[*171] Before 1 January 1987, no forms of underwriting agency or
sub-agency agreements were prescribed at Lloyd’s; but standard clauses
were in common use, and forms of agreement used by underwriting agents were
similar, if not identical. For the purposes of the first group of actions now
under appeal (the Merrett actions), which were concerned with that period,
specimen agreements were placed before Saville J. for use by him in respect of
those actions. These are to be found annexed to his judgment. However, pursuant
to the Lloyd’s Act 1982, byelaw No. 1 of 1985 was made which
prescribed forms of agency agreement and sub-agency agreement. These forms
became compulsorily applicable as from 1 January 1987, and are the relevant
forms in the other two groups of actions which are the subject of the present
appeals, the Feltrim actions and the Gooda Walker actions. A subsequent byelaw,
No. 8 of 1988, prescribed new standard forms of agreement for use in 1990 and
subsequent years of account. With these forms, which swept away the distinction
between direct and indirect Names, your Lordships are not directly concerned in
the present appeals. I turn to the appeals now before your Lordships’ House.
These are (1) the Merrett appeals, and (2) the conjoined Feltrim and Gooda
Walker appeals. (1) The Merrett appeals The appellants in these appeals (referred to as
“Merretts”) are in fact Merrett Syndicates Ltd.
(“M.S.L.”) and Merrett Underwriting Agency Management Ltd.
(“M.U.A.M.”). Up to 1 January 1986, M.S.L. was a combined
agent. It was the managing agent of Syndicate 418/417, and was also a
members’ agent. From 1 January 1986, M.U.A.M. became the Managing
Agent of Syndicate 418/417, and M.S.L. operated solely as a members’
agent. There are three groups of Merrett actions brought by Names who were
members of Syndicate 418/417. In all three groups of actions, there are
complaints of negligent closure of a year or years of account into subsequent
years by reinsurance to close (“R.I.T.C.”). In one of them,
there is also a complaint as to the writing of certain contracts of insurance;
and in this case there is also an issue of limitation. (2)(a) The Feltrim appeals The appellants are (i) Feltrim Underwriting Agencies Ltd.
(“Feltrim”), which acted as a managing agent only; and (ii)
about 40 members’ agents (“the Feltrim members’
agents”), which are in fact unrelated to Feltrim. In the actions which
are the subject of these appeals, Names who were members of syndicates managed
by Feltrim sue Feltrim as managing agents, and also sue the Feltrim
members’ agents as their members’ agents. All the Names are
indirect Names. The Names allege against Feltrim negligent underwriting during
the years 1987-1989 arising out of their Syndicates’ participation in
the London market excess of loss (“L.M.X.”) business, it
being alleged that the underwriters assumed greatly excessive aggregate
liabilities, and took out far too little reinsurance. The Feltrim
members’ agents are sued on the basis that they are contractually
liable for the defaults of Feltrim as managing agents to whom the underwriting
was delegated. There is no limitation issue. [*172] (2)(b) The Gooda Walker appeals The appellants are 65 members’ agents (“the
Gooda Walker members’ agents”), against which it is alleged
by Names that they are contractually liable to the Names for failure by the
managing agents of the syndicates of which the Names were members, to which the
Gooda Walker members’ agents had delegated the function of
underwriting, to exercise reasonable care and skill in relation to such underwriting. It might have been expected that, in all three groups of appeals,
there would be appeals by both the members’ agents and the managing
agents, and that in each case issues would arise whether there was liability on
their part in contract, or in tort, or for breach of fiduciary duty. But that
is not in fact the case. In the case of the Merrett appeals, there is no issue
before your Lordships between the Names and their members’ agents
acting as such. Except for one entirely distinct issue concerned with R.I.T.C.,
the appeals are concerned only with the issue of liability, either in tort or
for breach of fiduciary duty, of Merretts as managing agents, whether to direct
Names (where Merretts were combined agents) or to indirect Names. By way of contrast,
in the Gooda Walker appeals the Gooda Walker managing agents are not appealing
to this House against the decision of the Court of Appeal, with the result that
the ruling of the Court of Appeal that they owed a contractual duty to direct
Names, and a duty of care in tort to indirect Names, will remain binding as
between them and the Names in question. The only issue now before your
Lordships on the Gooda Walker appeals arises in relation to the agency
agreements entered into between Names and the Gooda Walker members’
agents. So far as the Feltrim appeals are concerned, however, issues arise both
as to Feltrim’s liability as managing agents, viz. whether Feltrim
owed a duty of care in tort, or as fiduciary, to the indirect Names who were
members of the Feltrim syndicates in the years 1987-1989, and as to the Feltrim
members’ agents’ liability as such in relation to the agency
agreements entered into between them and Names, as in the Gooda Walker appeals. In the result, the following issues have been identified as
arising for the decision of your Lordships’ House on these appeals. Issue 1 (A) Merrett appeals: liability of managing agents to Names under
the forms of agreement in force before 1987 (1) Duty of care — indirect Names. Did managing agents
(who were not also members’ agents) owe indirect Names a duty under
the pre-1985 byelaw form of underwriting agency agreement to carry out their
underwriting functions with reasonable care and skill for the 1979 to 1985 years
of account inclusive? (a) Does the law of tort impose any duty upon managing
agents not to cause purely economic loss to Names? (b) Does the
“absolute discretion” conferred upon managing agents under
the pre-1985 byelaw form of underwriting agency agreement preclude the
implication of any duty other than duties to act honestly, rationally and
loyally? [*173] (2) Duty of care — direct Names. Did Merretts as managing
agents who were also members’ agents owe direct Names a non-contractual
duty under the pre-1985 byelaw forms of underwriting agency agreement to carry
out their underwriting functions with reasonable care and skill for the 1979 to
1985 years of account inclusive? (3) Fiduciary duty. Did Merretts as managing agents (whether they
were also members’ agents or not) owe Names as fiduciary a duty to
conduct the underwriting for the account of the Names with reasonable care and
skill for the 1979 to 1985 years of account (inclusive) equivalent to the
alleged duty of care in tort? (B) Feltrim appeals: liability of managing agents to Names under
the forms of agreement in force between 1987 and 1989 (1) Duty of care — indirect Names. In tort — did
Feltrim, a managing agent only, owe a duty of care in tort to the (indirect)
Names on the Feltrim syndicates to carry out the conduct and management of the
underwriting business of the Feltrim syndicates with reasonable care and skill
at any material time between 1987 and 1989? (2) Fiduciary duty. As fiduciary — did Feltrim owe Names
a fiduciary duty equivalent to a duty of care in tort as described above? Issue 2 Feltrim and Gooda Walker appeals: liability of members’
agents to Names under the forms of agreement in force during the period 1987 to
1989 Whether, in relation to, and on the true construction of, agency
agreements entered into between Names and members’ agents in the
standard form provided for by Lloyd’s byelaw No. 1 of 1985: (1) It was
a term of the said agency agreements that the actual underwriting would be
carried on with reasonable care and skill, so that the members’ agents
remained directly responsible to their Names for any failure to exercise
reasonable care and skill by the managing agents of any particular syndicate to
whom such underwriting had been delegated. (2) There was a term of the said
agreements that the members’ agent was only required to exercise
reasonable care and skill in relation to such activities and functions as
members’ agents by custom and practice actually perform for their
Names personally. (3) There was a direct contractual relationship of principal
and agent between Names and the managing agents of syndicates in which the
Names participated. Issue 3 Merrett appeals: reinsurance to close Whether for Names who executed the new prescribed 1985 byelaw form
of underwriting agency agreement the contractual relationship between such
Names for the 1985 underwriting year of account and their members’
agents and between their members’ agents and the managing agent in
relation to the acceptance in about June 1987 by the syndicate for the 1985
underwriting year of account of the reinsurance to close the [*174] 1984
underwriting year of account was governed by the 1985 byelaw form of agreement or
by the pre-1985 byelaw form of agreement. For the purpose of considering these various issues, I shall for
convenience organise them a little differently, as will appear hereafter. I. Merrett and Feltrim appeals A. Duty of care — Liability of managing agents to Names
(both direct and indirect Names) in tort 1. Introduction I turn now to the tortious issues which arise in the Merrett and
Feltrim appeals. The first issue, in the order in which they are stated, is
concerned with the question whether managing agents, which were not also
members’ agents, owed to indirect Names a duty of care in tort to
carry out their underwriting functions with reasonable care and skill. The
second issue is concerned with the question whether managing agents, which were
also members’ agents, owed such a duty to direct Names. The first of these issues, relating to indirect Names, arises in
both the Merrett appeals and the Feltrim appeals. However the issue in the
Merrett appeals arises in the context of the pre-1985 byelaw forms of agency
and sub-agency agreements, whereas that in the Feltrim appeals does so in the
context of the forms of agreement prescribed under the 1985 byelaw. The second
of these issues, relating to direct Names, arises only in the Merrett appeals,
in the context of the pre-1985 byelaw forms. It is desirable that I should at once identify the reasons why
Names in the Merrett and Feltrim actions are seeking to establish that there is
a duty of care owed to them by managing agents in tort. First, the direct Names
in the Merrett actions seek to hold the managing agents concurrently liable in
contract and in tort. Where, as in the case of direct Names, the agents are
combined agents, there can be no doubt that there is a contract between the
Names and the agents, acting as managing agents, in respect of the underwriting
carried out by the managing agents on behalf of the Names as members of the
syndicate or syndicates under their management, the only question being as to
the scope of the managing agents’ contractual responsibility in this
respect. Even so, in the Merrett actions, Names are concerned to establish the
existence of a concurrent duty of care in tort, if only because there is a
limitation issue in one of the actions, in which Names wish therefore to be
able to take advantage of the more favourable date for the accrual of the cause
of action in tort, as opposed to that in contract. Second, the indirect Names
in both the Merrett and the Feltrim actions are seeking to establish the
existence of a duty of care on the part of the managing agents in tort, no
doubt primarily to establish a direct liability to them by the managing agents,
but also, in the case of the Merrett actions, to take advantage of the more
advantageous position on limitation. Your Lordships were informed that there is
no limitation issue in the Feltrim actions. I turn next to the forms of agreement which provide the
contractual context for these issues. I have already recorded that, so far as
the pre-1985 byelaw forms are concerned, no form was prescribed, but those in
use were substantially similar if not identical, and that specimen forms of
[*175] agency and
sub-agency agreement were agreed for the purposes of these preliminary issues
and are scheduled to the judgment of Saville J. The most relevant provisions of
the specimen forms are the following. (1) Agency agreement “1.
The Agent shall act as the underwriting agent for the Name for the purposes of
underwriting at Lloyd’s for the account of the Name policies and
contracts of insurance reinsurance and guarantee relating to all classes of
insurance business which with the sanction of the Committee of Lloyd’s
may be transacted at Lloyd’s by the syndicate.” “4.
The agent shall have full power and authority to appoint and employ the
sub-agent to carry on or manage the underwriting and to delegate to or confer
upon the sub-agent all or any of the powers authorities discretions and rights
given to the agent by this agreement.” “6.
(a) The agent shall have the sole control and management of the underwriting
and absolute discretion as to the acceptance of risks and settlement of claims
whether such claims shall in the opinion of the agent be legally enforceable or
not. . . . (d) The Name shall not in any way interfere with the exercise of the
aforesaid control or management or discretion.” “7.
The following provisions shall apply concerning the accounts of the
underwriting:- . . . (e) The syndicate account of any calendar year shall not
be closed before the expiration of the two calendar years next following the
calendar year in question and in order to close the syndicate account of any
year the agent may:- (i) reinsure all or any outstanding liabilities in such manner
and by debiting such account with such sum as the agent shall in the absolute
discretion of the agent think fit as a premium for reinsurance and crediting
the reinsurance premium to the syndicate account of the next succeeding year or
(ii) reinsure all or any outstanding liabilities of such account into the
account of any other year then remaining open or in any other manner which the
agent thinks fit or (iii) allow the whole or part of a syndicate account of any
year to remain open until its outstanding liabilities shall have run off . .
.” “12.(a)
The agent may from time to time retain out of the profits of the underwriting
which would otherwise be payable to the Name any moneys which the agent may in
the absolute discretion of the agent (subject to any requirements prescribed by
Lloyd’s) think desirable to carry to reserve and such moneys may be
placed on deposit at any bank or discount house of public or local authorities
or building society or may be invested in such stocks funds shares or
securities (including bearer securities) in any part of the world as the agent
may determine and the agent shall not be responsible for any loss of principal
or interest on such deposits or investments. Interest or dividends earned on
any such deposits or investments shall be credited to the Name in respect to
the Name’s due proportion thereof.” [*176] (2) Sub-agency agreement “2.
The sub-agent agrees and is retained and authorised to act as underwriting
sub-agent for the agent for the purpose of underwriting at Lloyd’s in
the names and for the account of each of the Names policies and contracts of
insurance reinsurance and guarantee relating to all classes of insurance
business which with the sanction of the Committee of Lloyd’s may be
transacted as insurance business and of carrying on for each of the Names the
business of marine underwriter at Lloyd’s and the appointment of the
sub-agent shall take effect in respect of each of the Names on and from the date
specified in the second column of the schedule hereto opposite the name of each
of the Names.” “5.
The agent delegates to the sub-agent the exercise of all such powers
authorities discretions and rights conferred upon the agent by the underwriting
agency agreement as it may be in any way necessary for the sub-agent to have to
enable the sub-agent or any underwriter or agent appointed by the sub-agent to
carry on the underwriting for the Names and to close the accounts of the
Names.” “6.
Subject to the provisions of clause 7 hereof the underwriting shall be
conducted and the accounts thereof shall be kept and made up and the profits
ascertained in such manner as the sub-agent may for the time being think fit
and the sub-agent shall have the sole control and management of the
underwriting and sole discretion as to the acceptance of risks and the
compromise or settlement of claims.” “8.
All questions relating to the investment of premiums and other monies not
required for the current service of the underwriting and to the time and manner
of paying over profits and the placing of sums to a reserve shall be decided by
the sub-agent and subject as aforesaid the sub-agent shall pay over the profits
of the underwriting to the agent for distribution to the Names.” Turning to the forms of agency and sub-agency agreements
prescribed by the 1985 byelaw, I will set out the material provisions below
when considering Issue 2, concerned with the liability of members’
agents. These provisions will therefore be available for reference, and I do
not propose to repeat them here. In the result, in neither the specimen agreements nor the
agreements prescribed by the 1985 byelaw is there any express provision
imposing on the agent a duty to exercise care and skill in the exercise of the
relevant functions under the agreement; but I understand it not to be in
dispute that a term to that effect must be implied into the agreements. It is
against that background that the question falls to be considered whether a like
obligation rested upon the managing agents in tort, so that the managing agents
which were also members’ agents owed such a duty of care in tort to
direct Names, with the effect that the direct Names had alternative remedies,
in contract and tort, against the managing agents; and whether managing agents
which were not also members’ agents owed such a duty of care in tort
to indirect Names, so that the indirect Names had a remedy in tort against the
managing agents, notwithstanding the [*177] existence of a contractual structure
embracing indirect Names, members’ agents and managing agents, under
which such a duty was owed in contract by the managing agents to the
members’ agents, and by the members’ agents to the indirect
Names. Furthermore, the question also arises whether, under the pre-1985 forms
of agreement, the absolute discretion as to the acceptance of risks (and
settlement of claims) vested in agents under clause 6(a) of the agency
agreement, and delegated by them to sub-agents (the managing agents) under
clauses 5 and 6 of the sub-agency agreement, was effective to exclude any duty
of care which might otherwise have been imposed upon the managing agents,
either in contract or in tort. Saville J. resolved all these issues in favour of the Names. He
held that a duty of care was owed by managing agents in tort both to direct
Names and to indirect Names, and that the existence of such a duty of care was
not excluded by reason of the relevant contractual regime, whether under the
pre-1985 specimen agreements, or under the forms of agreement prescribed by the
1985 byelaw. In particular, he held that the absolute discretion conferred on
the agent under clause 6(a) of the pre-1985 byelaw specimen agency agreement, and
delegated to the managing agent under clauses 5 and 6 of the related sub-agency
agreement, did not exclude any such duty of care. On all these points Saville
J.’s decision was, as I have recorded, affirmed by the Court of
Appeal. 2. The argument of the managing agents The main argument advanced by the managing agents against the
existence of a duty of care in tort was that the imposition of such a duty upon
them was inconsistent with the contractual relationship between the parties. In
the case of direct Names, where there was a direct contract between the Names
and the managing agents, the argument was that the contract legislated
exclusively for the relationship between the parties, and that a parallel duty
of care in tort was therefore excluded by the contract. In the case of indirect
Names, reliance was placed on the fact that there had been brought into
existence a contractual chain, between Name and members’ agent, and
between members’ agent and managing agent; and it was said that, by
structuring their contractual relationship in this way, the indirect Names and
the managing agents had deliberately excluded any direct responsibility,
including any tortious duty of care, to the indirect Names by the managing
agents. In particular, the argument ran, it was as a result not permissible for
the Names to pray in aid, for limitation purposes, the more favourable time for
accrual of a cause of action in tort. To do so, submitted the managing agents,
would deprive them of their contractual expectations, and would avoid the
policy of Parliament that there are different limitation regimes for contract
and tort. Such was the main argument advanced on behalf of the managing
agents. Moreover, as appears from my summary of it, the argument is not precisely
the same in the case of direct Names and indirect Names respectively. However,
in any event, I think it desirable first to consider the principle upon which a
duty of care in tort may in the present context be imposed upon the managing
agents, assuming that to impose such a [*178] duty would not be inconsistent
with the relevant contractual relationship. In considering this principle, I
bear in mind in particular the separate submission of the managing agents that
no such duty should be imposed, because the loss claimed by the Names is purely
economic loss. However the identification of the principle is, in my opinion,
relevant to the broader question of the impact of the relevant contract or
contracts. 3. The governing principle Even so, I can take this fairly shortly. I turn immediately to the
decision of this House in Hedley Byrne & Co. Ltd. v. Heller &
Partners Ltd. [1964] A.C. 465. There, as is of course well known, the question
arose whether bankers could be held liable in tort in respect of the gratuitous
provision of a negligently favourable reference for one of their customers,
when they knew or ought to have known that the plaintiff would rely on their
skill and judgment in furnishing the reference, and the plaintiff in fact
relied upon it and in consequence suffered financial loss. Your
Lordships’ House held that, in principle, an action would lie in such
circumstances in tort; but that, in the particular case, a duty of care was
negatived by a disclaimer of responsibility under cover of which the reference
was supplied. The case has always been regarded as important in that it
established that, in certain circumstances, a duty of care may exist in respect
of words as well as deeds, and further that liability may arise in negligence in
respect of pure economic loss which is not parasitic upon physical damage. But,
perhaps more important for the future development of the law, and certainly
more relevant for the purposes of the present case, is the principle upon which
the decision was founded. The governing principles are perhaps now perceived to
be most clearly stated in the speeches of Lord Morris of Borth-y-Gest (with
whom Lord Hodson agreed) and of Lord Devlin. Lord Morris said, at pp. 502-503: “My
Lords, I consider that it follows and that it should now be regarded as settled
that if someone possessed of a special skill undertakes, quite irrespective of
contract, to apply that skill for the assistance of another person who relies
upon such skill, a duty of care will arise. The fact that the service is to be
given by means of or by the instrumentality of words can make no difference.
Furthermore, if in a sphere in which a person is so placed that others could
reasonably rely upon his judgment or his skill or upon his ability to make
careful inquiry, a person takes it upon himself to give information or advice
to, or allows his information or advice to be passed on to, another person who,
as he knows or should know, will place reliance upon it, then a duty of care
will arise.” Lord Devlin said, at p. 526: “The
respondents in this case cannot deny that they were performing a service. Their
sheet anchor is that they were performing it gratuitously and therefore no
liability for its performance can arise. My Lords, in my opinion this is not
the law. A promise given without consideration to perform a service cannot be
enforced as a [*179] contract by the
promisee; but if the service is in fact performed and done negligently, the
promisee can recover in an action in tort.” He then cited a number of authorities, and continued, at pp.
528-529: “I think, therefore, that there is
ample authority to justify your Lordships in saying now that the categories of
special relationships which may give rise to a duty to take care in word as
well as in deed are not limited to contractual relationships or to
relationships of fiduciary duty, but include also relationships which in the
words of Lord Shaw in Nocton v. Lord Ashburton [1914] A.C. 932, 972
are ‘equivalent to contract,’ that is, where there is an
assumption of responsibility in circumstances in which, but for the absence of
consideration, there would be a contract. Where there is an express
undertaking, an express warranty as distinct from mere representation, there
can be little difficulty. The difficulty arises in discerning those cases in
which the undertaking is to be implied. In this respect the absence of
consideration is not irrelevant. Payment for information or advice is very good
evidence that it is being relied upon and that the informer or adviser knows
that it is. Where there is no consideration, it will be necessary to exercise
greater care in distinguishing between social and professional relationships
and between those which are of a contractual character and those which are not.
It may often be material to consider whether the adviser is acting purely out
of good nature or whether he is getting his reward in some indirect form. The
service that a bank performs in giving a reference is not done simply out of a
desire to assist commerce. It would discourage the customers of the bank if
their deals fell through because the bank had refused to testify to their
credit when it was good. “I have had the advantage of reading
all the opinions prepared by your Lordships and of studying the terms which
your Lordships have framed by way of definition of the sort of relationship
which gives rise to a responsibility towards those who act upon information or
advice and so creates a duty of care towards them. I do not understand any of
your Lordships to hold that it is a responsibility imposed by law upon certain
types of persons or in certain sorts of situations. It is a responsibility that
is voluntarily accepted or undertaken, either generally where a general
relationship, such as that of solicitor and client or banker and customer, is
created, or specifically in relation to a particular transaction.” He said, at pp. 531-532: “Since
the essence of the matter in the present case and in others of the same type is
the acceptance of responsibility, I should like to guard against the imposition
of restrictive terms notwithstanding that the essential condition is fulfilled.
If a defendant says to a plaintiff: ‘Let me do this for you; do not waste
your money in employing a professional, I will do it for nothing and you can
rely on me;’ I do not think he could escape liability simply because
he belonged to no profession or calling, had no qualifications or special skill
and did [*180]
not hold himself out as having any. The relevance of these factors is to show
the unlikelihood of a defendant in such circumstances assuming a legal
responsibility, and as such they may often be decisive. But they are not
theoretically conclusive and so cannot be the subject of definition. It would
be unfortunate if they were. For it would mean that plaintiffs would seek to
avoid the rigidity of the definition by bringing the action in contract as in De
La Bere v. Pearson Ltd. [1908] 1 K.B. 280 and setting up something that would do for
consideration. That, to my mind, would be an undesirable development in the
law; and the best way of avoiding it is to settle the law so that the presence
or absence of consideration makes no difference.” From these statements, and from their application in Hedley
Byrne,
we can derive some understanding of the breadth of the principle underlying the
case. We can see that it rests upon a relationship between the parties, which
may be general or specific to the particular transaction, and which may or may
not be contractual in nature. All of their Lordships spoke in terms of one
party having assumed or undertaken a responsibility towards the other. On this
point, Lord Devlin spoke in particularly clear terms in both passages from his
speech which I have quoted above. Further, Lord Morris spoke of that party
being possessed of a “special skill” which he undertakes to
“apply for the assistance of another who relies upon such
skill.” But the facts of Hedley Byrne itself, which was
concerned with the liability of a banker to the recipient for negligence in the
provision of a reference gratuitously supplied, show that the concept of a
“special skill” must be understood broadly, certainly broadly
enough to include special knowledge. Again, though Hedley Byrne was concerned with
the provision of information and advice, the example given by Lord Devlin of
the relationship between solicitor and client, and his and Lord
Morris’s statements of principle, show that the principle extends
beyond the provision of information and advice to include the performance of
other services. It follows, of course, that although, in the case of the
provision of information and advice, reliance upon it by the other party will be
necessary to establish a cause of action (because otherwise the negligence will
have no causative effect), nevertheless there may be other circumstances in
which there will be the necessary reliance to give rise to the application of
the principle. In particular, as cases concerned with solicitor and client
demonstrate, where the plaintiff entrusts the defendant with the conduct of his
affairs, in general or in particular, he may be held to have relied on the
defendant to exercise due skill and care in such conduct. In subsequent cases concerned with liability under the Hedley
Byrne
principle in respect of negligent misstatements, the question has frequently
arisen whether the plaintiff falls within the category of persons to whom the
maker of the statement owes a duty of care. In seeking to contain that category
of persons within reasonable bounds, there has been some tendency on the part
of the courts to criticise the concept of “assumption of
responsibility” as being “unlikely to be a helpful or
realistic test in most cases” (see Smith v. Eric S. Bush [1990] 1 A.C. 831,
864-865, per Lord [*181] Griffiths; and see also Caparo Industries Plc. v.
Dickman
[1990] 2 A.C. 605, 628, per Lord Roskill). However, at least in cases such as
the present, in which the same problem does not arise, there seems to be no
reason why recourse should not be had to the concept, which appears after all
to have been adopted, in one form or another, by all of their Lordships in Hedley
Byrne
[1964] A.C. 465 (see, e.g., Lord Reid, at pp. 483, 486 and 487; Lord Morris
(with whom Lord Hodson agreed), at p. 494; Lord Devlin, at pp. 529 and 531; and
Lord Pearce at p. 538). Furthermore, especially in a context concerned with a
liability which may arise under a contract or in a situation
“equivalent to contract,” it must be expected that an
objective test will be applied when asking the question whether, in a
particular case, responsibility should be held to have been assumed by the
defendant to the plaintiff: see Caparo Industries Plc. v. Dickman [1990] 2 A.C. 605,
637, per Lord Oliver of Aylmerton. In addition, the concept provides its own
explanation why there is no problem in cases of this kind about liability for
pure economic loss; for if a person assumes responsibility to another in
respect of certain services, there is no reason why he should not be liable in
damages for that other in respect of economic loss which flows from the
negligent performance of those services. It follows that, once the case is identified
as falling within the Hedley Byrne principle, there should be no need to embark
upon any further enquiry whether it is “fair, just and
reasonable” to impose liability for economic loss — a point
which is, I consider, of some importance in the present case. The concept
indicates too that in some circumstances, for example where the undertaking to
furnish the relevant service is given on an informal occasion, there may be no
assumption of responsibility; and likewise that an assumption of responsibility
may be negatived by an appropriate disclaimer. I wish to add in parenthesis
that, as Oliver J. recognised in Midland Bank Trust Co. Ltd. v. Hett, Stubbs
& Kemp [1979] Ch. 384, 416F-G (a case concerned with concurrent
liability of solicitors in tort and contract, to which I will have to refer in
a moment), an assumption of responsibility by, for example, a professional man
may give rise to liability in respect of negligent omissions as much as
negligent acts of commission, as for example when a solicitor assumes
responsibility for business on behalf of his client and omits to take a certain
step, such as the service of a document, which falls within the responsibility
so assumed by him. 4. The application of the principle to managing agents at
Lloyd’s Since it has been submitted on behalf of the managing agents that
no liability should attach to them in negligence in the present case because
the only damage suffered by the Names consists of pure economic loss, the
question arises whether the principle in Hedley Byrne is capable of
applying in the case of underwriting agents at Lloyd’s who are
managing agents. Like Saville J. and the Court of Appeal, I have no difficulty
in concluding that the principle is indeed capable of such application. The
principle has been expressly applied to a number of different categories of
person who perform services of a professional or quasi-professional nature,
such as bankers (in Hedley Byrne itself); solicitors (as foreshadowed by Lord
Devlin in Hedley Byrne, and as held in the leading [*182] case of Midland
Bank Trust Co. Ltd v. Hett, Stubbs & Kemp [1979] Ch. 384, and
other cases in which that authority had been followed); surveyors and valuers
(as in Smith v. Eric S. Bush [1990] 1 A.C. 831); and accountants (as in Caparo
Industries Plc. v. Dickman [1990] 2 A.C. 605). Another category of persons to whom
the principle has been applied, and on which particular reliance was placed by
the Names in the courts below and in argument before your Lordships, is
insurance brokers. As Phillips J. pointed out in Youell v. Bland Welch & Co. Ltd.
(No. 2) [1990] 2 Lloyd’s Rep. 431, 459, it has been accepted, since
before 1964, that an insurance broker owes a duty of care in negligence towards
his client, whether the broker is bound by contract or not. Furthermore, in Punjab
National Bank v. de Boinville [1992] 1 Lloyd’s Rep. 7 it was held
by the Court of Appeal, affirming the decision of Hobhouse J., that a duty of
care was owed by an insurance broker not only to his client but also to a
specific person whom he knew was to become an assignee of the policy. For my
part I can see no reason why a duty of care should not likewise be owed by
managing agents at Lloyd’s to a Name who is a member of a syndicate
under the management of the agents. Indeed, as Saville J. and the Court of
Appeal both thought, the relationship between Name and managing agent appears
to provide a classic example of the type of relationship to which the principle
in Hedley Byrne applies. In so saying, I put on one side the question of the
impact, if any, upon the relationship of the contractual context in which it is
set. But, that apart, there is in my opinion plainly an assumption of
responsibility in the relevant sense by the managing agents towards the Names
in their syndicates. The managing agents have accepted the Names as members of
a syndicate under their management. They obviously hold themselves out as
possessing a special expertise to advise the Names on the suitability of risks
to be underwritten; and on the circumstances in which, and the extent to which,
reinsurance should be taken out and claims should be settled. The Names, as the
managing agents well knew, placed implicit reliance on that expertise, in that
they gave authority to the managing agents to bind them to contracts of
insurance and reinsurance and to the settlement of claims. I can see no escape
from the conclusion that, in these circumstances, prima facie a duty of care is
owed in tort by the managing agents to such Names. To me, it does not matter if
one proceeds by way of analogy from the categories of relationship already
recognised as falling within the principle in Hedley Byrne [1964] A.C. 465 or by
a straight application of the principle stated in the Hedley Byrne case itself. On
either basis the conclusion is, in my opinion, clear. Furthermore, since the
duty rests on the principle in Hedley Byrne, no problem arises
from the fact that the loss suffered by the Names is pure economic loss. This conclusion is, however, subject to the impact, if any, of the
contractual context. In argument before your Lordships this was regarded as
constituting the main basis for the managing agents’ challenge to the
conclusion on this point of the courts below. To this point I must therefore
turn; but before I do so I propose to consider briefly, if only to put it on
one side, the question whether, under the pre-1985 forms of agreement, a duty
of care on the part of the managing agents was excluded [*183] by the absolute
discretion vested in them under their contract with the direct Names, or with
the members’ agents in cases involving indirect Names. 5. Absolute discretion I can deal with this point briefly because, like the Court of
Appeal, I agree with Saville J. that there is no substance in it. It was the
submission of the managing agents in the Merrett appeals before your Lordships,
as it had been before Saville J., that there was an unbroken line of authority
supporting the proposition that the expression “absolute
discretion” in the context of a private law agreement meant that the
exercise of the power given by the agreement to the recipient of the power
cannot be challenged by the donor or beneficiary of the power unless (a) the exercise
of the power is in bad faith, or (b) (arguably) the exercise of the power is
totally unreasonable. It followed, so the argument ran, that a duty to exercise
due skill or care, whether contractual or extra-contractual, was inconsistent
with the bargain and so must be excluded. However, it appears to me, as it did
to the judge, that in the present context the words used cannot have the effect
of excluding a duty of care, contractual or otherwise. Clear words are required
to exclude liability in negligence; and in the present case the words can, and
in my opinion should, be directed towards the scope of the agents’
authority. No doubt the result is that very wide authority has been vested in
the agents; but the suggestion that the agent should as a result be under no
duty to exercise due skill and care in the exercise of his function under the
agreement is, in the present context, most surprising. I am content to adopt
the following passage from the judgment of Saville J. as my own: “As
I have said in other cases, Lloyd’s could not exist as an insurance
and reinsurance market unless the business is conducted by professionals who
must be given the widest possible powers to act on behalf of the Names. Thus
the underwriting agency agreement makes absolutely clear that the Name must
leave it exclusively to the underwriting agents actually to run the business.
The standard of behaviour to be expected of the underwriting agents in carrying
out this task is an entirely different matter. The underwriting agency
agreement contains no express provisions in this regard, but I do not find this
in the least surprising, since it seems to me literally to go without saying
that the underwriting agents must act with reasonable care and skill in
exercising their authority and carrying on the underwriting business on behalf
of the Name. The very fact that the agents are given the widest possible
authority to act on behalf of the Name, together with the fact that the
Name’s potential liability for the actions of the agents is unlimited
and the further fact that the agents receive remuneration for exercising their
professional skills on behalf of the Name, seem to me to point irresistibly to
the conclusion that in such a relationship the law does (as a matter of common sense
it should) impose a duty of reasonable care and skill upon the underwriting
agents of the kind alleged by the Names, which could only be modified or
excluded by clear agreement between the parties. I can find nothing in the
underwriting agency agreement which [*184] indicates
that this duty (the ordinary one owed by any professional person) is in any way
modified or excluded in the present cases, nor to my mind is there anything of
relevance in this context in the sub-agency agreement.” For these reasons I am, like both courts below, unable to accept
the managing agents’ argument on this point. With this point out of
the way I can turn to the main argument on this part of the case, relating to
the impact of the contractual context. 6. The impact of the contractual context All systems of law which recognise a law of contract and a law of
tort (or delict) have to solve the problem of the possibility of concurrent
claims arising from breach of duty under the two rubrics of the law. Although
there are variants, broadly speaking two possible solutions present themselves:
either to insist that the claimant should pursue his remedy in contract alone,
or to allow him to choose which remedy he prefers. As my noble and learned
friend, Lord Mustill, and I have good reason to know (see J. Braconnot et
Cie. v. Compagnie des Messageries Maritimes (The Sindh) [1975] 1
Lloyd’s Rep. 372), France has adopted the former solution in its
doctrine of non cumul, under which the concurrence of claims in contract and
tort is outlawed (see Tony Weir in XI Int.Encycl.Comp.L.,ch. 12, paras. 47-72,
at paragraph 52). The reasons given for this conclusion are (1) respect for the
will of the legislator, and (2) respect for the will of the parties to the
contract (see paragraph 53). The former does not concern us; but the latter is
of vital importance. It is however open to various interpretations. For such a
policy does not necessarily require the total rejection of concurrence, but
only so far as a concurrent remedy in tort is inconsistent with the terms of
the contract. It comes therefore as no surprise to learn that the French
doctrine is not followed in all civil law jurisdictions, and that concurrent
remedies in tort and contract are permitted in other civil law countries,
notably Germany (see paragraph 58). I only pause to observe that it appears to
be accepted that no perceptible harm has come to the German system from
admitting concurrent claims. The situation in common law countries, including of course
England, is exceptional, in that the common law grew up within a procedural
framework uninfluenced by Roman law. The law was categorised by reference to
the forms of action, and it was not until the abolition of the forms of action
by the Common Law Procedure Act 1852 (15 & 16 Vict. c. 76) that it became
necessary to reclassify the law in substantive terms. The result was that
common lawyers did at last segregate our law of obligations into contract and
tort, though in so doing they relegated quasi-contractual claims to the status
of an appendix to the law of contract, thereby postponing by a century or so
the development of a law of restitution. Even then, there was no systematic
reconsideration of the problem of concurrent claims in contract and tort. We
can see the courts rather grappling with unpromising material drawn from the
old cases in which liability in negligence derived largely from categories
based upon the status of the defendant. In a sense, we must not be surprised;
for no [*185] significant law faculties were established at our
universities until the late 19th century, and so until then there was no
academic opinion available to guide or stimulate the judges. Even so, it is a
remarkable fact that there was little consideration of the problem of
concurrent remedies in our academic literature until the second half of the
20th century, though in recent years the subject has attracted considerable
attention. In the result, the courts in this country have until recently
grappled with the problem very largely without the assistance of systematic
academic study. At first, as is shown in particular by cases concerned with
liability for solicitors’ negligence, the courts adopted something
very like the French solution, holding that a claim against a solicitor for
negligence must be pursued in contract, and not in tort (see, e.g., Bean v.
Wade
(1885) 2 T.L.R. 157); and in Groom v. Crocker [1939] 1 K.B. 194,
this approach was firmly adopted. It has to be said, however, that decisions
such as these, though based on prior authority, were supported by only a
slender citation of cases, none of great weight; and the jurisprudential basis
of the doctrine so adopted cannot be said to have been explored in any depth.
Furthermore when, in Bagot v. Stevens Scanlan & Co. Ltd. [1966] 1 Q.B. 197,
Diplock L.J. adopted a similar approach in the case of a claim against a firm
of architects, he felt compelled to recognise (pp. 204-205) that a different
conclusion might be reached in cases “where the law in the old days
recognised either something in the nature of a status like a public calling
(such as common carrier, common innkeeper, or a bailor and bailee) or the
status of master and servant.” To this list must be added cases
concerned with claims against doctors and dentists. I must confess to finding
it startling that, in the second half of the 20th century, a problem of
considerable practical importance should fall to be solved by reference to such
an outmoded form of categorisation as this. I think it is desirable to stress at this stage that the question
of concurrent liability is by no means only of academic significance. Practical
issues, which can be of great importance to the parties, are at stake. Foremost
among these is perhaps the question of limitation of actions. If concurrent
liability in tort is not recognised, a claimant may find his claim barred at a
time when he is unaware of its existence. This must moreover be a real
possibility in the case of claims against professional men, such as solicitors
or architects, since the consequences of their negligence may well not come to
light until long after the lapse of six years from the date when the relevant
breach of contract occurred. Moreover the benefits of the Latent Damage Act 1986,
under which the time of the accrual of the cause of action may be postponed
until after the plaintiff has the relevant knowledge, are limited to actions in
tortious negligence. This leads to the startling possibility that a client who
has had the benefit of gratuitous advice from his solicitor may in this respect
be better off than a client who has paid a fee. Other practical problems arise,
for example, from the absence of a right to contribution between negligent
contract-breakers; from the rules as to remoteness of damage, which are less
restricted in tort than they are in contract; and from the availability of the
opportunity to obtain leave to serve proceedings out of the jurisdiction. It
can of course be argued that the principle established in respect of concurrent
[*186] liability in
contract and tort should not be tailored to mitigate the adventitious effects
of rules of law such as these, and that one way of solving such problems would
no doubt be to rephrase such incidental rules as have to remain in terms of the
nature of the harm suffered rather than the nature of the liability asserted
(see Tony Weir, XI Int.Encycl.Comp.L. ch.12, para. 72). But this is perhaps
crying for the moon; and with the law in its present form, practical
considerations of this kind cannot sensibly be ignored. Moreover I myself perceive at work in these decisions not only the
influence of the dead hand of history, but also what I have elsewhere called
the temptation of elegance. Mr. Tony Weir (XI Int.Encycl.Comp.L. ch.12, para.
55) has extolled the French solution for its elegance; and we can discern the
same impulse behind the much-quoted observation of Lord Scarman when delivering
the judgment of the Judicial Committee of the Privy Council in Tai Hing
Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd. [1986] A.C. 80, 107: “Their Lordships do not believe that
there is anything to the advantage of the law’s development in
searching for a liability in tort where the parties are in a contractual
relationship. This is particularly so in a commercial relationship. Though it
is possible as a matter of legal semantics to conduct an analysis of the rights
and duties inherent in some contractual relationships including that of banker
and customer either as a matter of contract law when the question will be what,
if any, terms are to be implied or as a matter of tort law when the task will
be to identify a duty arising from the proximity and character of the
relationship between the parties, their Lordships believe it to be correct in
principle and necessary for the avoidance of confusion in the law to adhere to
the contractual analysis: on principle because it is a relationship in which
the parties have, subject to a few exceptions, the right to determine their
obligations to each other, and for the avoidance of confusion because different
consequences do follow according to whether liability arises from contract or
tort, e.g. in the limitation of action.” It is however right to stress, as did Sir Thomas Bingham M.R. in
the present case, that the issue in the Tai Hing case was whether a tortious
duty of care could be established which was more extensive than that which was
provided for under the relevant contract. At all events, even before the Tai Hing case we can see the
beginning of the redirection of the common law away from the contractual
solution adopted in Groom v. Crocker [1939] 1 K.B. 194, towards the recognition of
concurrent remedies in contract and tort. First, and most important, in 1963
came the decision of your Lordships’ House in Hedley Byrne &
Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465. I have already expressed
the opinion that the fundamental importance of this case rests in the
establishment of the principle upon which liability may arise in tortious
negligence in respect of services (including advice) which are rendered for
another, gratuitously or otherwise, but are negligently performed —
viz., an assumption of responsibility coupled with reliance by the plaintiff
which, in all the circumstances, makes it appropriate that a [*187] remedy in law should
be available for such negligence. For immediate purposes, the relevance of the
principle lies in the fact that, as a matter of logic, it is capable of
application not only where the services are rendered gratuitously, but also
where they are rendered under a contract. Furthermore we can see in the
principle an acceptable basis for liability in negligence in cases which in the
past have been seen to rest upon the now outmoded concept of status. In this
context, it is of particular relevance to refer to the opinion expressed both
implicitly by Lord Morris of Borth-y-Gest (with whom Lord Hodson agreed) and
expressly by Lord Devlin that the principle applies to the relationship of solicitor
and client, which is nearly always contractual: see pp. 465, 497-499 (where
Lord Morris approved the reasoning of Chitty J. in Cann v. Willson (1888) 39 Ch.D. 39),
and p. 529 ( per Lord Devlin). The decision in Hedley Byrne, and the statement of general
principle in that case, provided the opportunity to reconsider the question of
concurrent liability in contract and tort afresh, untrammelled by the ancient
learning based upon a classification of defendants in terms of status which
drew distinctions difficult to accept in modern conditions. At first that
opportunity was not taken. Groom v. Crocker [1939] 1 K.B. 194 was
followed by the Court of Appeal in Cook v. Swinfen [1967] 1 W.L.R. 457,
and again in Heywood v. Wellers [1976] Q.B. 446; though in the latter case
Lord Denning M.R., at p. 459, was beginning to show signs of dissatisfaction
with the contractual test accepted in Groom v. Crocker — a
dissatisfaction which crystallised into a change of heart in Esso Petroleum
Co. Ltd. v. Mardon [1976] Q.B. 801. That case was concerned with statements made by
employees of Esso in the course of precontractual negotiations with Mr. Mardon,
the prospective tenant of a petrol station. The statements related to the
potential throughput of the station. Mr. Mardon was persuaded by the statements
to enter into the tenancy; but he suffered serious loss when the actual
throughput proved to be much lower than had been predicted. The Court of Appeal
held that Mr. Mardon was entitled to recover damages from Esso, on the basis of
either breach of warranty or (on this point affirming the decision of the judge
below) negligent misrepresentation. In rejecting an argument that
Esso’s liability could only be contractual, Lord Denning M.R.
dismissed Groom v. Crocker [1939] 1 K.B. 194 and Bagot v. Stevens
Scanlan & Co. Ltd. [1966] 1 Q.B. 197 as inconsistent with other decisions of
high authority, viz. Boorman v. Brown (1842) 3 Q.B. 511, 525-526, per Tindal
C.J., and (1844) 11 Cl. & F. 1, 44, per Lord Campbell; Lister v. Romford
Ice and Cold Storage Co. Ltd. [1957] A.C. 555, 587, per Lord Radcliffe; Matthews
v. Kuwait Bechtel Corporation [1959] 2 Q.B. 57 and Nocton v. Lord
Ashburton [1914] A.C. 932, 956, per Viscount Haldane L.C. He then held
that, in addition to its liability in contract, Esso was also liable in
negligence. The other members of the Court of Appeal, Ormrod and Shaw L.JJ.,
agreed that Mr. Mardon was entitled to recover damages either for breach of
warranty or for negligent misrepresentation, though neither expressed any view
about the status of Groom v. Crocker [1939] 1 K.B. 194. It was however implicit in
their decision that, as Lord Denning M.R. held, concurrent remedies were
available to Mr. Mardon in contract and tort. For present purposes, I do not
find it necessary to [*188] comment on the authorities relied upon by Lord
Denning as relieving him from the obligation to follow Groom v. Crocker; though I feel driven
to comment that the judgments in Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801
reveal no analysis in depth of the basis upon which concurrent liability rests.
That case was however followed by the Court of Appeal in Batty v.
Metropolitan Property Realisations Ltd. [1978] Q.B. 554, in which concurrent
remedies in contract and tort were again allowed. The requisite analysis is however to be found in the judgment of
Oliver J. in Midland Bank Trust Co. Ltd. v. Hett, Stubbs & Kemp [1979] Ch. 384, in
which he held that a solicitor could be liable to his client for negligence
either in contract or in tort, with the effect that in the case before him it
was open to the client to take advantage of the more favourable date of accrual
of the cause of action for the purposes of limitation. In that case, Oliver J.
was much concerned with the question whether it was open to him, as a judge of
first instance, to depart from the decision of the Court of Appeal in Groom
v. Crocker [1939] 1 K.B. 194. For that purpose, he carried out a most
careful examination of the relevant authorities, both before and after Groom
v. Crocker, and concluded that he was free to depart from the decision in
that case, which he elected to do. It is impossible for me to do justice to the reasoning of Oliver
J., for which I wish to express my respectful admiration, without unduly
prolonging what is inevitably a very long opinion. I shall therefore confine
myself to extracting certain salient features. First, from his study of the
cases before Groom v. Crocker, he found no unanimity of view that the
solicitor’s liability was regarded as exclusively contractual. Some
cases (such as Howell v. Young (1826) 5 B. & C. 259) he regarded as
equivocal. In others, he understood the judges to regard contract and tort as
providing alternative causes of action (see In re Manby and Hawksford (1856) 26 L.J.Ch.
313, 317 and Sawyer v. Goodwin (1867) 36 L.J.Ch. 578, 582, in both cases per
Stuart V.-C., and most notably Nocton v. Lord Ashburton [1914] A.C. 932, 956,
per Viscount Haldane L.C.). However Bean v. Wade (1885) 2 T.L.R. 157,
briefly reported in the Times Law Reports and by no means extensively referred
to, provided Court of Appeal authority that the remedy was exclusively
contractual; and it was that case which was principally relied upon by the
Court of Appeal in Groom v. Crocker [1939] 1 K.B. 194 when reaching the same
conclusion. Oliver J. put on one side those cases, decided for the purpose of
section 11 of the County Courts Act 1915, under which a different statutory
test had to be complied with, viz. whether the action was one “founded
on a contract” or “founded on a tort.” It is evident that the early authorities did not play a very
significant part in Oliver J.’s decision (see [1979] Ch. 384, 411C-D).
He loyally regarded Groom v. Crocker as prima facie binding upon him. His main
concern was with the impact of the decision of this House in Hedley Byrne [1964] A.C. 465, and
of subsequent cases in the Court of Appeal in which Hedley Byrne had been applied. As
he read the speeches in Hedley Byrne, the principle there stated was not limited
to circumstances in which the responsibility of the defendant had been
gratuitously assumed. He referred in particular to the statement of principle
by Lord Morris of [*189] Borth-y-Gest, at pp. 502-503, which I have already quoted,
and said, at p. 411: “The principle was stated by Lord
Morris of Borth-y-Gest as a perfectly general one and it is difficult to see
why it should be excluded by the fact that the relationship of dependence and
reliance between the parties is a contractual one rather than one gratuitously
assumed, in the absence, of course, of contractual terms excluding or
restricting the general duties which the law implies.” Oliver J. went on, at p. 412, to quote from the dissenting
judgment of Denning L.J. in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164,
179-180 (a passage approved by Lord Pearce in Hedley Byrne [1964] A.C. 465, 538)
and said, at p. 413: “Now, in that passage, I think that
it is abundantly clear that Denning L.J. was seeking to enunciate a general
principle of liability arising from the relationship created by the assumption
of a particular work or responsibility, quite regardless of how the
relationship arose. . . . The inquiry upon which the court is to embark is ‘what
is the relationship between the plaintiff and defendant?’ not
‘how did the relationship, if any, arise?’ That this is so
appears, I think, with complete clarity from subsequent cases.” Later he said, at p. 415: “The matter becomes, in my judgment,
even clearer when one looks at the speech of Lord Devlin in the Hedley Byrne case [1964] A.C. 465,
for he treats the existence of a contractual relationship as very good evidence
of the general tortious duty which he is there discussing. He said, at pp.
528-529: ‘I think, therefore, that there is ample authority to justify
your Lordships in saying now that the categories of special relationships which
may give rise to a duty to take care in word as well as in deed are not limited
to contractual relationships or to relationships of fiduciary duty, but include
also relationships which in the words of Lord Shaw in Nocton v. Lord
Ashburton [1914] A.C. 932, 972, are “equivalent to
contract,” that is, where there is an assumption of responsibility in
circumstances in which, but for the absence of consideration, there would be a
contract.’ “ He expressed his conclusion concerning the impact of Hedley
Byrne
on the case before him in the following words, at p. 417: “The case of a layman consulting a solicitor for advice
seems to me to be as typical a case as one could find of the sort of
relationship in which the duty of care described in the Hedley Byrne case [1964] A.C. 465
exists; and if I am free to do so in the instant case, I would, therefore, hold
that the relationship of solicitor and client gave rise to a duty in the
defendants under the general law to exercise that care and skill upon which
they must have known perfectly well that their client relied. To put it another
way, their common law duty was not to injure their client by failing to do that
which they had undertaken to do and which, at their invitation, he relied upon
them to do. That [*190] duty was broken, but no cause of action in tort arose until
the damage occurred; and none did occur until 17 August 1967. I would regard it
as wholly immaterial that their duty arose because they accepted a retainer
which entitled them, if they chose to do so, to send a bill to their
client.” I wish to express my respectful agreement with these passages in
Oliver J.’s judgment. Thereafter, Oliver J. proceeded to consider the authorities since Hedley
Byrne,
in which he found, notably in statements of the law by members of the Appellate
Committee in Arenson v. Arenson [1977] A.C. 405 and in the decision of the
Court of Appeal in Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801, the
authority which relieved him of his duty to follow Groom v. Crocker [1939] 1 K.B. 194.
But I wish to add that, in the course of considering the later authorities, he
rejected the idea that there is some general principle of law that a plaintiff
who has claims against a defendant for breach of duty both in contract and in
tort is bound to rely upon his contractual rights alone. He said, at p. 420: “There is not and never has been any
rule of law that a person having alternative claims must frame his action in
one or the other. If I have a contract with my dentist to extract a tooth, I am
not thereby precluded from suing him in tort if he negligently shatters my jaw:
Edwards v. Mallan [1908] 1 K.B. 1002; . . .” The origin of concurrent remedies in this type of case may lie in
history; but in a modern context the point is a telling one. Indeed it is
consistent with the decision in Donoghue v. Stevenson [1932] A.C. 562
itself, and the rejection in that case of the view, powerfully expressed in the
speech of Lord Buckmaster (see, in particular, pp. 577-578), that the
manufacturer or repairer of an article owes no duty of care apart from that
implied from contract or imposed by statute. That there might be co-existent
remedies for negligence in contract and in tort was expressly recognised by
Lord Macmillan in Donoghue v. Stevenson, at p. 610, and by Lord Wright in Grant
v. Australian Knitting Mills Ltd. [1936] A.C. 85, 102-104. Attempts have been
made to explain how doctors and dentists may be concurrently liable in tort
while other professional men may not be so liable, on the basis that the former
cause physical damage whereas the latter cause pure economic loss (see the
discussion by Christine French in (1981-84) 5 Otago L.R. 236, 280-281). But
this explanation is not acceptable, if only because some professional men, such
as architects, may also be responsible for physical damage. As a matter of
principle, it is difficult to see why concurrent remedies in tort and contract,
if available against the medical profession, should not also be available
against members of other professions, whatever form the relevant damage may
take. The judgment of Oliver J. in the Midland Bank Trust Co. case [1979] Ch. 384
provided the first analysis in depth of the question of concurrent liability in
tort and contract. Following upon Esso Petroleum Co. Ltd. v. Mardon [1976] Q.B. 801, it
also broke the mould, in the sense that it undermined the view which was
becoming settled that, where there is an alternative liability in tort, the
claimant must pursue his remedy in [*191] contract alone. The development of the
case law in other common law countries is very striking. In the same year as
the Midland Bank Trust Co. case, the Irish Supreme Court held that
solicitors owed to their clients concurrent duties in contract and tort: see Finlay
v. Murtagh [1979] I.R. 249. Next, in Central Trust Co. v. Rafuse (1986) 31 D.L.R. (4th)
481, Le Dain J., delivering the judgment of the Supreme Court of Canada,
conducted a comprehensive and most impressive survey of the relevant English
and Canadian authorities on the liability of solicitors to their clients for
negligence, in contract and in tort, in the course of which he paid a generous
tribute to the analysis of Oliver J. in the Midland Bank Trust Co. case. His conclusions
are set out in a series of propositions at pp. 521-522; but his general
conclusion was to the same effect as that reached by Oliver J. He said, at p.
522: “A concurrent or alternative
liability in tort will not be admitted if its effect would be to permit the
plaintiff to circumvent or escape a contractual exclusion or limitation of
liability for the act or omission that would constitute the tort. Subject to
this qualification, where concurrent liability in tort and contract exists the
plaintiff has the right to assert the cause of action that appears to be the
most advantageous to him in respect of any particular legal
consequence.” I respectfully agree. Meanwhile in New Zealand the Court of Appeal had appeared at
first, in McLaren Maycroft & Co. v. Fletcher Development Co. Ltd. [1973] 2 N.Z.L.R.
100, to require that, in cases where there are concurrent duties in contract
and tort, the claimant must pursue his remedy in contract alone. There followed
a period of some uncertainty, in which differing approaches were adopted by
courts of first instance. In 1983 Miss Christine French published her article
on “The Contract/Tort Dilemma” in (1981-84) 5 Otago L.R. 236,
in which she examined the whole problem in great depth, with special reference
to the situation in New Zealand, having regard to the “rule”
in McLaren Maycroft. Her article, to which I wish to pay tribute, was of
course published before the decision of the Supreme Court of Canada in the Central
Trust
case. Even so, she reached a conclusion which, on balance, favoured a freedom
for the claimant to choose between concurrent remedies in contract and tort.
Thereafter in Rowlands v. Callow [1992] 1 N.Z.L.R. 178 Thomas J., founding
himself principally on the Central Trust case and on Miss French’s
article, concluded that he was free to depart from the decision of the New
Zealand Court of Appeal in the McLaren Maycroft case and to hold that a person
performing professional services (in the case before him an engineer) may be
sued for negligence by his client either in contract or in tort. He said, at p.
190: “The issue is now virtually
incontestable; a person who has performed professional services may be held
liable concurrently in contract and in negligence unless the terms of the
contract preclude the tortious liability.” In
Australia, too, judicial opinion appears to be moving in the same direction,
though not without dissent: see, in particular, Aluminum [*192] Products (Qld.) Pty. Ltd. v. Hill [1981] Qd.R. 33 (a decision of the Full Court of the
Supreme Court of Queensland) and Macpherson & Kelley v. Kevin J. Prunty
& Associates [1983] 1 V.R. 573 (a
decision of the Full Court of the Supreme Court of Victoria). A different view
has however been expressed by Deane J. in Hawkins v. Clayton (1988) 164 C.L.R. 539, 585, to which I will return later.
In principle, concurrent remedies appear to have been accepted for some time in
the United States (see Prosser’s Handbook on the Law of Torts, 7th ed.
(1984), p. 444), though with some variation as to the application of the
principle in particular cases. In these circumstances it comes as no surprise
that Professor Fleming, writing in 1992, should state that “the last
ten years have seen a decisive return to the ‘concurrent’
approach” (see The Law of Torts,
8th ed. (1992), p. 187). I have dealt with the matter at some length because, before your
Lordships, Mr. Temple, for the managing agents, boldly challenged the decision
of Oliver J. in the Midland Bank Trust Co. case [1979] Ch. 384, seeking to
persuade your Lordships that this House should now hold that case to have been
wrongly decided. This argument was apparently not advanced below, presumably
because Oliver J.’s analysis had received a measure of approval in the
Court of Appeal: see, e.g., Forster v. Outred & Co. [1982] 1 W.L.R. 86,
99, per Dunn L.J. Certainly there has been no sign of disapproval, even where
the Midland Bank Trust Co. case has been distinguished: see Bell v.
Peter Browne & Co. [1990] 2 Q.B. 495. Mr. Temple adopted as part of his argument the reasoning of Mr. J.
M. Kaye in an article “The Liability of Solicitors in Tort”
(1984) 100 L.Q.R. 680. In his article, Mr. Kaye strongly criticised the
reasoning of Oliver J. both on historical grounds and with regard to his
interpretation of the speeches in the Hedley Byrne case [1964] A.C. 465.
However, powerful though Mr. Kaye’s article is, I am not persuaded by
it to treat the Midland Bank Trust Co. case [1979] Ch. 384 as wrongly
decided. First, so far as the historical approach is concerned, this is no
longer of direct relevance in a case such as the present, having regard to the
development of the general principle in Hedley Byrne. No doubt it is
correct that, in the 19th century, liability in tort depended upon the category
of persons into which the defendant fell, with the result that in those days it
did not necessarily follow that, because (for example) a surgeon owed an
independent duty of care to his patient in tort irrespective of contract, other
professional men were under a similar duty. Even so, as Mr. Boswood for the
Names stressed, if the existence of a contract between a surgeon and his
patient did not preclude the existence of a tortious duty to the patient in
negligence, there is no reason in principle why a tortious duty should not
co-exist with a contractual duty in the case of the broad duty of care now
recognised following the generalisation of the tort of negligence in the 20th
century. So far as Hedley Byrne itself is concerned, Mr. Kaye reads the
speeches as restricting the principle of assumption of responsibility there
established to cases where there is no contract; indeed, on this he tolerates
no dissent, stating (at p. 706) that “unless one reads [Hedley
Byrne]
with deliberate intent to find obscure or ambiguous passages” it will
not bear the interpretation favoured by Oliver J. I must confess however that,
having [*193] studied yet again the speeches in Hedley Byrne [1964] A.C. 465 in
the light of Mr. Kaye’s critique, I remain of the opinion that Oliver
J.’s reading of them is justified. It is, I suspect, a matter of the
angle of vision with which they are read. For here, I consider, Oliver J. was
influenced not only by what he read in the speeches themselves, notably the
passage from Lord Devlin’s speech at pp. 528-529 (quoted above), but
also by the internal logic reflected in that passage, which led inexorably to
the conclusion which he drew. Mr. Kaye’s approach involves regarding
the law of tort as supplementary to the law of contract, i.e. as providing for
a tortious liability in cases where there is no contract. Yet the law of tort
is the general law, out of which the parties can, if they wish, contract; and,
as Oliver J. demonstrated, the same assumption of responsibility may, and
frequently does, occur in a contractual context. Approached as a matter of
principle, therefore, it is right to attribute to that assumption of
responsibility, together with its concomitant reliance, a tortious liability,
and then to inquire whether or not that liability is excluded by the contract
because the latter is inconsistent with it. This is the reasoning which Oliver
J., as I understand it, found implicit, where not explicit, in the speeches in Hedley
Byrne.
With his conclusion I respectfully agree. But even if I am wrong in this, I am
of the opinion that this House should now, if necessary, develop the principle
of assumption of responsibility as stated in Hedley Byrne to its logical
conclusion so as to make it clear that a tortious duty of care may arise not
only in cases where the relevant services are rendered gratuitously, but also
where they are rendered under a contract. This indeed is the view expressed by
my noble and learned friend, Lord Keith of Kinkel, in Murphy v. Brentwood
District Council [1991] 1 A.C. 398, 466, in a speech with which all the other
members of the Appellate Committee agreed. An alternative approach, which also avoids the concurrence of
tortious and contractual remedies, is to be found in the judgment of Deane J. in
Hawkins v. Clayton, 164 C.L.R. 539, 582-586, in which he concluded, at p. 585: “On balance, however, it seems to me
to be preferable to accept that there is neither justification nor need for the
implication of a contractual term which, in the absence of actual intention of
the parties, imposes upon a solicitor a contractual duty (with consequential
liability in damages for its breach) which is coextensive in content and
concurrent in operation with a duty (with consequential liability in damages for
its breach) which already exists under the common law of negligence.” It is however my understanding that by the law in this country
contracts for services do contain an implied promise to exercise reasonable
care (and skill) in the performance of the relevant services; indeed, as Mr.
Tony Weir has pointed out (XI Int.Encycl.Comp.L., ch. 12, para. 67), in the
19th century the field of concurrent liabilities was expanded “since
it was impossible for the judges to deny that contracts contained an implied
promise to take reasonable care, at the least, not to injure the other
party.” My own belief is that, in the present context, the common law
is not antipathetic to concurrent liability, and that there is no sound [*194] basis for a
rule which automatically restricts the claimant to either a tortious or a
contractual remedy. The result may be untidy; but, given that the tortious duty
is imposed by the general law, and the contractual duty is attributable to the
will of the parties, I do not find it objectionable that the claimant may be
entitled to take advantage of the remedy which is most advantageous to him,
subject only to ascertaining whether the tortious duty is so inconsistent with
the applicable contract that, in accordance with ordinary principle, the
parties must be taken to have agreed that the tortious remedy is to be limited
or excluded. In the circumstances of the present case, I have not regarded it
as necessary or appropriate to embark upon yet another detailed analysis of the
case law, choosing rather to concentrate on those authorities which appear to
me to be here most important. I have been most anxious not to overburden an
inevitably lengthy opinion with a discussion of an issue which is only one
(though an important one) of those which fall for decision; and, in the context
of the relationship of solicitor and client, the task of surveying the
authorities has already been admirably performed by both Oliver J. and Le Dain
J. But, for present purposes more important, in the instant case liability can,
and in my opinion should, be founded squarely on the principle established in Hedley
Byrne
itself, from which it follows that an assumption of responsibility coupled with
the concomitant reliance may give rise to a tortious duty of care irrespective
of whether there is a contractual relationship between the parties, and in
consequence, unless his contract precludes him from doing so, the plaintiff,
who has available to him concurrent remedies in contract and tort, may choose that
remedy which appears to him to be the most advantageous. 7. Application of the above principles in the present case I have already concluded that prima facie a duty of care was owed
in tort on the Hedley Byrne principle by managing agents both to direct
Names and indirect Names. So far as the direct Names are concerned, there is
plainly a contract between them and the managing agents, in the terms of the
pre-1985 byelaw form of agency agreement, in which a term falls to be implied
that the agents will exercise due care and skill in the exercise of their
functions as managing agents under the agreement. That duty of care is no
different from the duty of care owed by them to the relevant Names in tort;
and, having regard to the principles already stated, the contract does not
operate to exclude the tortious duty, leaving it open to the Names to pursue
either remedy against the agents. I turn to the indirect Names. Here there is, as I see it, no
material distinction between the claims of the Names in the Merrett actions,
and those of the Names in the Feltrim actions. True, the former arise in the
context of the pre-1985 byelaw forms of agency and sub-agency agreements,
whereas the latter arise in the context of the forms of agreement prescribed by
the 1985 byelaw. However in both cases there must be implied into the
sub-agency agreements a duty upon the managing agents to exercise due skill and
care. A similar responsibility must rest upon the members’ agents
under the 1985 byelaw form of agency agreement, and I will assume that the same
applies under the pre-1985 byelaw form (though the point does not arise for
decision by your [*195] Lordships). In neither case, however, is there any material
difference between the relevant contractual duty and any duty which is owed by
the managing agents to the relevant Names in tort. It is however submitted on
behalf of the managing agents that the indirect Names and the managing agents,
as parties to the chain of contracts contained in the relevant agency and sub-agency
agreements, must be taken to have thereby structured their relationship so as
to exclude any duty of care owed directly by the managing agents to the
indirect Names in tort. In essence the argument must be that, because the managing agents
have, with the consent of the indirect Names, assumed responsibility in respect
of the relevant activities to another party, i.e. the members’ agents,
under a sub-agency agreement, it would be inconsistent to hold that they have
also assumed responsibility in respect of the same activities to the indirect
Names. I for my part cannot see why in principle a party should not assume
responsibility to more than one person in respect of the same activity. Let it
be assumed (unlikely though it may be) that, in the present case, the managing
agents were in a contractual relationship not only with the members’
agents under a sub-agency agreement but also directly with the relevant Names,
under both of which they assumed responsibility for the same activities. I can
see no reason in principle why the two duties of care so arising should not be
capable of co-existing. Of course I recognise that the present case presents the unusual
feature that claims against the managing agents, whether by the
members’ agents under the sub-agency agreement or by the indirect
Names in tort, will in both cases have the purpose, immediate or ultimate, of
obtaining compensation for the indirect Names. In these circumstances,
concurrent duties of care could, in theory at least, give rise to problems, for
example in the event of the insolvency of the managing agents or the
members’ agents. Furthermore, as Mr. Temple suggested in the course of
his submissions on behalf of the managing agents, questions of contribution
might, at least in theory, arise. But your Lordships’ task, like that
of the courts below, is to answer the questions of principle raised by the
issues presented for decision; and in these circumstances it would be quite
wrong to embark upon the examination of questions which do not arise on those
issues, and indeed may never arise in practice. For myself, I am all the more
reluctant to do so since, because the liability (if any) of the managing agents
will in each case flow from claims by the indirect Names, it may well be that
practical problems such as these will, if they arise, find a practical
solution. I wish however to add that I strongly suspect that the situation
which arises in the present case is most unusual; and that in many cases in
which a contractual chain comparable to that in the present case is constructed
it may well prove to be inconsistent with an assumption of responsibility which
has the effect of, so to speak, short circuiting the contractual structure so
put in place by the parties. It cannot therefore be inferred from the present
case that other sub-agents will be held directly liable to the agent’s
principal in tort. Let me take the analogy of the common case of an ordinary
building contract, under which main contractors contract with the building
owner for the construction of the [*196] relevant building, and the main
contractor sub-contracts with sub-contractors or suppliers (often nominated by
the building owner) for the performance of work or the supply of materials in
accordance with standards and subject to terms established in the sub-contract.
I put on one side cases in which the sub-contractor causes physical damage to
property of the building owner, where the claim does not depend on an
assumption of responsibility by the sub-contractor to the building owner;
though the sub-contractor may be protected from liability by a contractual
exemption clause authorised by the building owner. But if the sub-contracted
work or materials do not in the result conform to the required standard, it
will not ordinarily be open to the building owner to sue the sub-contractor or
supplier direct under the Hedley Byrne principle, claiming damages from him
on the basis that he has been negligent in relation to the performance of his
functions. For there is generally no assumption of responsibility by the
sub-contractor or supplier direct to the building owner, the parties having so
structured their relationship that it is inconsistent with any such assumption
of responsibility. This was the conclusion of the Court of Appeal in Simaan
General Contracting Co. v. Pilkington Glass Ltd. (No. 2) [1988] Q.B.
758. As Bingham L.J. put it, at p. 781: “I do not, however, see any basis on
which [the nominated suppliers] could be said to have assumed a direct
responsibility for the quality of the goods to [the building owners]: such a
responsibility is, I think, inconsistent with the structure of the contract the
parties have chosen to make.” It is true that, in this connection, some difficulty has been
created by the decision of your Lordships’ House in Junior Books
Ltd. v. Veitchi Co. Ltd. [1983] 1 A.C. 520. In my opinion, however, it is
unnecessary for your Lordships to reconsider that decision for the purposes of
the present appeal. Here however I can see no inconsistency between the
assumption of responsibility by the managing agents to the indirect Names, and
that which arises under the sub-agency agreement between the managing agents
and the members’ agents, whether viewed in isolation or as part of the
contractual chain stretching back to and so including the indirect Names. For
these reasons, I can see no reason why the indirect Names should not be free to
pursue their remedy against the managing agents in tort under the Hedley
Byrne
principle. I. Merrett and Feltrim appeals B. Fiduciary duty The question arising under this issue is whether Merretts acting
as managing agents (whether or not they are also members’ agents) owed
the Names a fiduciary duty to conduct the underwriting for the account of the
Names with reasonable skill for the 1979 to 1985 underwriting years of account
(inclusive) equivalent to the alleged duty of care in tort. Both Saville J. and the Court of Appeal declined to address this
question since having regard to the manner in which they decided the issue on
the tortious duty of care, the question did not arise. Having [*197] regard to the
conclusion which I have reached on the tortious duty, I likewise do not think
it necessary for your Lordships’ House to address the question of
fiduciary duty. II. Feltrim and Gooda Walker appeals: liability of
members’ agents to Names during the period 1987-1989 Saville J. held that this issue should be decided against the
members’ agents, and his decision was affirmed by the Court of Appeal,
for the same reasons. As a result it was held that, under agency agreements in
the form prescribed by Lloyd’s byelaw No. 1 of 1985, members’
agents are responsible to the Names for any failure to exercise reasonable
skill and care on the part of managing agents to whom underwriting has been
delegated by the members’ agents; and that the members agents are not
required to exercise skill and care only in relation to those activities and
functions which members’ agents by custom and practice actually
perform for the Names personally. This issue raises a question of construction of the prescribed
form of agency agreement. Since however the prescribed forms of agency and
sub-agency agreements together constitute the contractual regime established by
the byelaw, it follows that the agency agreement should not be considered in
isolation, but as forming, together with the sub-agency agreement, a coherent
whole which, in a case concerned with indirect Names, regulates the contractual
relationship between Name, members’ agent and managing agent.
Furthermore it is not to be forgotten that, in a case concerned with a combined
agent, the agency agreement may fulfil the dual function of regulating the functions
of the combined agent both in its role as members’ agent, and in its
role as managing agent in respect of any syndicate under its management of
which the Name is a member. In order to consider this question of construction I think it
desirable that I should, like Sir Thomas Bingham M.R., first set out the terms
of the most relevant provisions of the prescribed forms of agency and
sub-agency agreements. These are as follows. “THE AGENCY AGREEMENT “1. Definitions. In this agreement
the under mentioned expressions shall where the context so requires or admits
have the following meanings: — (a) The expression ‘the
syndicate’ shall mean the syndicate or, if more than one, each of the
respective syndicates of which the Name is for the time being a member under
the provisions of this agreement, being the syndicate or syndicates specified
in the schedule(s) attached hereto. . . .” “2. Appointment of the
Name’s agent at Lloyd’s. (a) The agent shall act as the underwriting
agent for the Name for the purpose of underwriting at Lloyd’s for the
account of the Name such classes and descriptions of insurance business, other
than those prohibited by the Council, as may be transacted by the syndicate
(hereinafter referred to as ‘the underwriting business’). (b)
In acting as underwriting agent for the Name the agent shall at all times
comply with the byelaws, regulations and requirements for the time being of the
Council affecting the Name as an underwriting member of Lloyd’s.
Provided [*198] that if and to the extent that any provision of this
agreement shall be inconsistent with any such byelaw, regulation or requirement
such inconsistent provision shall be deemed to be modified or cancelled so far
as may be necessary or appropriate to the intent that the byelaw, regulation or
requirement in question shall prevail and have full effect.” “4. Powers of the agent. (a) The
agent is authorised . . . to exercise such powers as the agent may consider to
be necessary or desirable in connection with or arising out of the underwriting
business, including without prejudice to the generality of the foregoing: (i)
the acceptance of risks and the effecting of reinsurance, including reinsurance
for the purpose of clause 5(g) hereof: . . . (b) Without prejudice to the
generality of the provisions of sub-clause (a) of this clause, the agent shall
have the following customary and/or special powers in connection with the
conduct and winding-up of the underwriting business: . . . (G) Delegation of
agent’s powers: Power, subject to any requirements of the Council, to
appoint to employ any person, firm or body corporate to carry on or manage the
underwriting business or any part thereof, and to delegate to or confer upon
any person, firm or body corporate all or any of the powers, authorities and
discretions given to the agent by this agreement including this power of
delegation and the other powers contained in this paragraph. “5. Control of underwriting business.
(a) The agent shall have the sole control and management of the underwriting
business and the Name shall not in any way interfere with the exercise of such
control or management. . . . (g) In order to close the underwriting account of
any year the agent may: (i) reinsure all or any outstanding liabilities in such
manner as the agent shall think fit, including the debiting of such account and
the crediting of the underwriting account of the next succeeding year with such
reinsurance premium as the agent in its absolute discretion (subject to any
requirements of the Council) thinks fair or (ii) reinsure all or any
outstanding liabilities into the underwriting account of any other year then
remaining open or in any other manner which the agent (subject as aforesaid)
thinks fair.” “8. Remuneration. (a) The Name shall
pay to the agent as remuneration for the services of the agent a fee at the
rate per annum specified in the syndicate schedule.” “9. Undertaking by the Name to pay
all liabilities and outgoings. (a) The Name shall keep the agent at all times
in funds available for the payment of the liabilities, expenses and outgoings
of the underwriting business.” “THE SUB-AGENCY AGREEMENT “Whereas the agent is the
underwriting agent at Lloyd’s for certain underwriting members of
Lloyd’s and it has been arranged between the agent and the sub-agent
that the sub-agent shall act as the sub-underwriting agent for one or more of
such underwriting members upon the terms hereinafter mentioned. [*199] “Now it is hereby agreed and declared
between the parties hereto as follows:- “2. The sub-agent shall act as
sub-agent for the agent for the purpose of conducting in the names and for the
account of each of the agent’s Names that part of the underwriting
business as defined in clause 2(a) of the agency agreement which is to be
transacted by such Name as a member of the syndicate (hereinafter called
‘the syndicate underwriting business’): . . .” 3.(a) The sub-agent shall underwrite for the
agent’s Names as part of the syndicate . . . (b) The individual
premium income limit to be allocated to the syndicate in respect of each of the
agent’s Names shall be agreed from time to time between the sub-agent
and the agent . . .” “5.(a) The agent delegates to the
sub-agent the performance of all such duties and the exercise of all such
powers, authorities and discretions imposed or conferred upon the agent by the
agency agreement (including without prejudice to the generality of the
foregoing the power of delegation contained in that agreement) as it may be
appropriate or necessary for the sub-agent to perform or exercise for the
purpose of carrying on the syndicate underwriting business.” “7.(a) The sub-agent shall conduct
the syndicate underwriting business in such manner as to comply with the
provisions of the agency agreement and Lloyd’s byelaws and regulations
and is to have regard for Lloyd’s Codes of Conduct or similar forms of
guidance for the Lloyd’s market.” “12.(a) The agent undertakes to put
and keep the sub-agent at all times in funds to such extent as the sub-agent
shall in its sole discretion determine to be requisite for payment of all
liabilities, expenses and outgoings from time to time payable in connection
with the syndicate underwriting business but (subject to any supplementary
provision) only to the extent that the agent shall be able to enforce against a
Name the provisions of the agency agreement.” The rival contentions of the parties centred upon the construction
to be placed upon clause 2(a) of the agency agreement. For the Names in the
Feltrim actions, it was submitted by Mr. Boswood that clause 2(a) contains an
express undertaking by the underwriting agent to act as the underwriting agent
of the Name, with the effect that (except to the extent that, where the agent
is a combined agent, it acts as managing agent of a syndicate of which the Name
is a member) members’ agents are as such bound to underwrite insurance
business for the Name. It was conceded that, if that submission was correct,
there was an implied term that such underwriting should be carried out with
reasonable care and skill. Mr. Boswood’s argument on this point was
supported by Mr. Vos for the Names in the Gooda Walker actions. This argument was accepted by the courts below. But before the
Appellate Committee it was subjected to a powerful attack by Mr. Eder for the
members’ agents. The argument ran as follows. [*200] (1) Mr. Eder began with clause 2(a) of the agency agreement, under
which it is provided that the agent shall act as ‘underwriting
agent’ for the Name. He then drew upon the definitions of
“underwriting agent” in byelaw No. 4 of 1984, and in
paragraph 1(c) of the Interpretation Byelaw No. 1 of 1983 (as amended), as
showing that an underwriting agent may be either a member’s agent or a
managing agent, and submitted that appointment under clause 2(a) as
“underwriting agent” did not of itself indicate in which
capacity the agent was agreeing to act. (2) Next he turned to clause 2(b). Here again he invoked byelaw
No. 4 of 1984, and the definitions in Part A of both “managing agent”
and “members’ agent” which show (1) that a managing
agent performs for an underwriting member the function of (inter alia)
underwriting contracts of insurance at Lloyd’s and (2) that a
members’ agent does not perform any of the functions of a managing
agent. Further, under paragraph 4(a) of Part B of the byelaw, there is a
prohibition against any person acting as a managing agent who is not registered
as such under the byelaw. Building on this prohibition, Mr. Eder developed an
argument to the effect that, on a true construction of clause 2(a),
members’ agents could not as such have agreed to do underwriting on
behalf of the Names, when that was a prohibited activity under the relevant
Lloyd’s legislation. (3) Turning to clause 4 of the agency agreement, he stressed that
the clause is concerned not with duties but with powers conferred upon the
agent, specifying powers the exercise of which the agent may consider to be
“necessary or desirable.” It followed from the fact that a
member’s agent is prohibited from acting as a managing agent that the
exercise, in particular, of the power to accept risks and effect reinsurances
could not properly be regarded as necessary or desirable for a members’
agent. Furthermore, clause 4(b)(G) falls into two parts, the former being
concerned with a power to appoint another person to carry on or manage the
underwriting business, and the latter with a power to delegate or confer upon
another the powers, etc., given to the agent. It was the submission of Mr. Eder
that the effect of this sub-clause was, first, that the members’ agent
can appoint a managing agent to carry on the actual underwriting for the Name,
even though the members’ agent has itself no power to do so; and that
the delegation of the broad authority conferred by clause 4(a) on the
members’ agent would have the effect of authorising the managing agent
to underwrite on the Name’s behalf. In his submission, clause 4(b)(G)
envisaged that the person so appointed would be acting directly on behalf of
the Name. (4) There was nothing in the agency agreement, and in particular
nothing in clause 5, to indicate that the members’ agents contracted
to underwrite or to be responsible for the underwriting in the sense advanced
by the Names. Impressed though I was by Mr. Eder’s argument, in the end
I feel unable to accept it. I start, like him, with clause 2(a). This is the central
provision, which makes available to Names the opportunity of participating in
underwriting at Lloyd’s. Consistently with that evident object, it
does not merely appoint the agent as “the underwriting agent”
for the Name, but does so “for the purpose of underwriting at Lloyd’s
for the account of the Name [*201] such classes and descriptions of
insurance business . . . as may be transacted by the Syndicate (hereinafter
referred to as ‘the underwriting business’).” Next,
I have in the forefront of my mind the fact that, as I have already pointed
out, the agency agreement is designed to enable it to perform a dual purpose so
that it may apply not only to the functions of a members’ agent as
such, but also to the functions performed by a combined agent when it acts as managing
agent in respect of a syndicate of which the Name is a member. I have a feeling
that this duality of function may lie at the root of the somewhat elliptical
language in which clause 2(a) is expressed. However it follows in my opinion
that appointment of the agent as underwriting agent under clause 2(a) must, in
the case of a combined agent, impose upon it the duty of carrying out
underwriting on behalf of the Name if entered as a member of a syndicate of
which the agent is the managing agent. Furthermore, I find it very difficult to
see how the same words in clause 2(a) can impose any different obligation on
the members’ agent when the relevant syndicate is not managed by it,
either because it is a pure members’ agent, or because the syndicate
in question is managed by some other managing agent. Here, I draw attention to
the definition of “the syndicate” in clause 1(a) of the
agency agreement, under which no distinction is drawn in this context between
syndicates managed by a combined agent in its capacity as managing agent, and
syndicates managed by some other managing agent, in which the Name is entered
as member pursuant to a sub-agency agreement with the members’ agent. That the same obligation is in such circumstances imposed on the
members’ agent is, in my opinion, made clear beyond doubt when we read
the agency agreement together with the sub-agency agreement, and discover from
clause 2 of the latter that the managing agent acts as sub-agent for the
members’ agent in conducting the relevant part of the underwriting
business as defined in clause 2(a) of the agency agreement. The position under
clause 2(a) is therefore that the obligation imposed on the members’
agent under the clause with regard to underwriting is the same, whether it is
acting as members’ agent or is a combined agent acting as managing
agent in respect of a syndicate of which the Name is a member. The only
difference is that in the former case it carries out the underwriting through
the agency of a managing agent, under the terms of the prescribed form of
sub-agency agreement, whereas in the latter case it carries it out itself. Furthermore, like Saville J., I cannot see that such performance
of its obligations by a members’ agent can constitute any breach of
the prohibition in paragraph 4 of Part B of the underwriting agents byelaw,
since in each case the function of managing agent will always be performed by a
managing agent; indeed, on my understanding of the position, this is precisely
what was intended by the draftsman of the agency and sub-agency agreements, who
plainly intended that there should be no breach of the byelaw. There is another consideration which strongly supports the
conclusion that clause 2(a) of the agency agreement must be read as imposing
responsibility on the members’ agent in respect of underwriting for
the Name. It is plain from the two prescribed forms of agreement that, in a
[*202] case involving
an indirect Name, they create no contractual relationship between the Name and
the managing agent. On the contrary, as I have already indicated, there is a
clear structure by virtue of which, under clause 2(a) of the agency agreement,
the members’ agent is appointed the Name’s underwriting agent
for the purpose set out in the sub-clause; and, under clause 2 of the
sub-agency agreement, it is provided (here mirroring the recital to that
agreement) that the sub-agent (the managing agent) shall act as sub-agent for
the agent (the members’ agent). Consistently with these provisions,
under clause 4 of the agency agreement all the necessary powers are vested in
the underwriting agent (the members’ agent), including the power to
delegate contained in clause 4(b)(G); and clause 5(a) of the sub-agency
agreement provides for the delegation by the agent (the members’
agent) to the sub-agent (the managing agent) of the performance of all duties
and the exercise of all powers, authorities and discretions imposed or
conferred upon the agent by the agency agreement as may be appropriate or
necessary. It was submitted by Mr. Eder on behalf of the members’
agents before Saville J. and the Court of Appeal, and again before the
Appellate Committee, that in cases involving indirect Names there was indeed a
contractual relationship between the Names and the managing agents, under which
the managing agents were contractually responsible for the proper performance
of the underwriting for the Names. In this connection, Mr. Eder relied in
particular upon the fact that the recital to the sub-agency agreement recites
that it has been arranged between the agent and the sub-agent that the
sub-agent shall act as the sub-underwriting agent for the Names. However, the substantive provisions of the sub-agency agreement
(in particular, clauses 2, 3, and 5) make it perfectly clear that, although the
sub-agent has power to underwrite for the agent’s names, i.e. to bind
the Names to contracts of insurance, nevertheless there is no contractual
relationship between the sub-agent and the Names, the only relevant contractual
relationship of the sub-agent being with the agent. In this connection the true
position in law is, in my opinion, accurately stated by Professor F. M. B.
Reynolds in article 36(3) Bowstead on Agency, 15th ed. (1985), p.
131, as follows: “But there is no privity of contract
between a principal and a sub-agent as such, merely because the delegation was
effected with the authority of the principal; and in the absence of such
privity the rights and duties arising out of any contracts between the
principal and the agent, and between the agent and the sub-agent, respectively,
are only enforceable by and against the immediate parties to those contracts.
However, the sub-agent may be liable to the principal as a fiduciary, and
possibly in other respects.” Of the three authorities cited by Mr. Eder in support of his
submission on this point De Bussche v. Alt (1878) 8 Ch.D. 286, Powell &
Thomas v. Evan Jones & Co. [1905] 1 K.B. 11 and Tarn v. Scanlan [1928] A.C. 34, the
first two were concerned with the accountability of a sub-agent for secret
profits, and the third with liability for income tax. Each was a decision on
its own specific facts, and none provides Mr. Eder with [*203] assistance in
the form of general guidance on the circumstances in which a contractual
relationship may come into existence between a principal and a sub-agent. I am
satisfied that no such relationship came into existence between the Names and
their sub-agents in the present case. In these circumstances, Mr. Eder’s argument leads to the
extraordinary conclusion that, under the prescribed forms of agency and
sub-agency agreements, neither members’ agents nor managing agents
assumed any contractual responsibility to the Names for the underwriting which
was the principal purpose of these agreements. Such a conclusion is, in my
opinion, so improbable that it adds considerable support for the view that Mr.
Eder’s argument cannot be right, and that the true position must be
that, on a true construction of clause 2(a) of the agency agreement,
members’ agents did indeed undertake to carry out underwriting for the
Names, as was held by both courts below. I recognise, of course, that it might have been thought right to
structure the agreements differently, so that the managing agents were put into
a direct contractual relationship with indirect Names who are members of
syndicates under their management. This was what was in fact done under the new
forms of agreement brought into force as from 1 January 1990. But it is plain
that this was not the intention under the forms of agreement now under
consideration under which, in cases involving indirect Names, the managing
agent acts as sub-agent of the members’ agent, and all the necessary
powers, etc., are vested in the members’ agent which then delegates
the performance of them to the managing agent. In truth, once it is appreciated that the obligation to underwrite
under clause 2(a) of the agency agreement may be performed by the underwriting
agent either by itself in a case involving direct Names, or otherwise through a
managing agent under the terms of the sub-agency agreement, everything falls
into place. This is particularly true of clause 4 of the agency agreement, when
read in conjunction with clauses 2 and 5 of the sub-agency agreement. As far as
clause 4(b)(G) of the agency agreement is concerned, on which Mr. Eder placed
such reliance, this can be seen to reflect precisely the position under clauses
2(a) and 4(a); the effect of the sub-clause is, as obviously contemplated by
the draftsman of the two agreements, that under the first part the
members’ agent will appoint the managing agent to act as its sub-agent
for the purpose of conducting the relevant part of the underwriting business,
under clause 2 of the sub-agency agreement, and under the second part delegate
to it under clause 5(a) the performance of the relevant powers, etc., which,
significantly, are vested in the members’ agent under clause 4(a) of
the agency agreement. The vesting of these powers in the members’
agent is, in my opinion, a strong pointer against the construction of the
agreements for which Mr. Eder contends. Had that construction represented the
draftsman’s intention, he would surely, in this respect at least, have
drafted the agreements differently. For these reasons, which I understand to be the same as those
given by Saville J., which were accepted by the Court of Appeal, I would on
this issue accept the argument advanced on behalf of the Names, and reject that
advanced on behalf of the members’ agents. [*204] III. Merrett appeals Reinsurance to close On this issue, I can see no answer to the conclusion reached by
Saville J. and the Court of Appeal. I agree with the submission advanced by Mr.
Boswood on behalf of the Names in the Merrett appeals that when Names on the
1985 underwriting year reinsured Names on the 1984 year, although the 1984
Names were running off their business, the 1985 Names were writing new
insurance business which could only be done pursuant to the 1985 byelaw form of
agreement in force as from 1 January 1987, as held by the courts below. Conclusion For these reasons, I would answer all the questions in the same
manner as Saville J. and the Court of Appeal, and I would dismiss the appeals
of the members’ agents and the managing agents with costs. LORD BROWNE-WILKINSON. My Lords, I have read the speech of my
noble and learned friend, Lord Goff of Chieveley, with which I am in complete
agreement. I add a few words of my own on the relationship between the claim
based on liability for negligence and the alternative claim advanced by the
Names founded on breach of fiduciary duty. The decision of this House in Hedley Byrne & Co. Ltd. v.
Heller & Partners Ltd. [1964] A.C. 465, was, to a substantial extent, founded on
the earlier decision of this House in Nocton v. Lord Ashburton [1914] A.C. 932. In
that case, Lord Ashburton sought to be relieved from the consequences of having
loaned money to, amongst others, his solicitor Nocton. Lord
Ashburton’s pleadings were based primarily on an allegation of fraud;
in particular, there was no allegation on the pleadings either of breach of
contract by Nocton or of negligence. The lower courts treated the case as being
wholly dependent on proof of fraud. But in this House Nocton was held liable
for breach of a fiduciary obligation owed by him as solicitor to his client.
However, although the decision was based on breach of fiduciary duty, both
Viscount Haldane L.C. and Lord Shaw expressed such fiduciary duty as being but
one example of a wider general principle, viz., that a man who has voluntarily
assumed to act on behalf of, or to advise, another in law assumes a duty to that
other to act or to advise with care. Viscount Haldane said, at p. 948: “Although liability for negligence in
word has in material respects been developed in our law differently from
liability for negligence in act, it is nonetheless true that the man may come
under a special duty to exercise care in giving information or advice. I should
accordingly be sorry to be thought to lend countenance to the idea that recent
decisions have been intended to stereotype the cases in which people can be
held to have assumed such a special duty. Whether such a duty has been assumed
must depend on the relationship of the parties, [*205] and it is at
least certain that there are a good many cases in which that relationship may
be properly treated as giving rise to a special duty of care in
statement.” Viscount Haldane L.C. gave a further explanation of the decision
in Nocton v. Lord Ashburton in Robinson v. National Bank of Scotland
Ltd.
[1916] S.C. (H.L.) 154, 157: “. . . I wish emphatically to repeat
what I said in advising this House in the case of Nocton v. Lord Ashburton, that it is a great
mistake to suppose that, because the principle in Derry v. Peek (1889) Nocton’s
case,
that an exaggerated view was taken by a good many people of the scope of the
decision in Derry v. Peek. The whole of the doctrine as to fiduciary
relationships, as to the duty of care arising from implied as well as expressed
contracts, as to the duty of care arising from other special relationships
which the courts may find to exist in particular cases, still remains, and I
shall be very sorry if any word fell from me which suggests that the courts are
in any way hampered in recognising that the duty of care may be established
when such cases really occur.” It was these passages from the speeches of Viscount Haldane L.C.,
and others, which this House in Hedley Byrne took up and developed
into the general principle there enunciated as explained by my noble and
learned friend, Lord Goff of Chieveley. This derivation from fiduciary duties of care of the principle of
liability in negligence where a defendant has by his action assumed
responsibility is illuminating in a number of ways. First, it demonstrates that
the alternative claim put forward by the Names based on breach of fiduciary
duty, although understandable, was misconceived. The liability of a fiduciary
for the negligent transaction of his duties is not a separate head of liability
but the paradigm of the general duty to act with care imposed by law on those who
take it upon themselves to act for or advise others. Although the historical
development of the rules of law and equity have, in the past, caused different
labels to be stuck on different manifestations of the duty, in truth the duty
of care imposed on bailees, carriers, trustees, directors, agents and others is
the same duty: it arises from the circumstances in which the defendants were
acting, not from their status or description. It is the fact that they have all
assumed responsibility for the property or affairs of others which renders them
liable for the careless performance of what they have undertaken to do, not the
description of the trade or position which they hold. In my judgment, the
duties which the managing agents have assumed to undertake in managing the
insurance business of the Names brings them clearly into the category of those
who are liable, whether fiduciaries or not, for any lack of care in the conduct
of that management. [*206] Secondly, in my judgment, the derivation of the general principle
from fiduciary duties may be instructive as to the impact of any contractual
relationship between the parties on the general duty of care which would
otherwise apply. The phrase “fiduciary duties” is a dangerous
one, giving rise to a mistaken assumption that all fiduciaries owe the same
duties in all circumstances. That is not the case. Although, so far as I am
aware, every fiduciary is under a duty not to make a profit from his position
(unless such profit is authorised), the fiduciary duties owed, for example, by
an express trustee are not the same as those owed by an agent. Moreover, and
more relevantly, the extent and nature of the fiduciary duties owed in any
particular case fall to be determined by reference to any underlying contractual
relationship between the parties. Thus, in the case of an agent employed under
a contract, the scope of his fiduciary duties is determined by the terms of the
underlying contract. Although an agent is, in the absence of contractual
provision, in breach of his fiduciary duties if he acts for another who is in
competition with his principal, if the contract under which he is acting
authorises him so to do, the normal fiduciary duties are modified accordingly:
see Kelly v. Cooper [1993] A.C. 205, and the cases there cited. The existence
of a contract does not exclude the co-existence of concurrent fiduciary duties
(indeed, the contract may well be their source); but the contract can and does
modify the extent and nature of the general duty that would otherwise arise. In my judgment, this traditional approach of equity to fiduciary
duties is instructive when considering the relationship between a contract and
any duty of care arising under the Hedley Byrne principle (of which
fiduciary duties of care are merely an example). The existence of an underlying
contract (e.g. as between solicitor and client) does not automatically exclude
the general duty of care which the law imposes on those who voluntarily assume
to act for others. But the nature and terms of the contractual relationship
between the parties will be determinative of the scope of the responsibility
assumed and can, in some cases, exclude any assumption of legal responsibility
to the plaintiff for whom the defendant has assumed to act. If the common law
is not to become again manacled by “clanking chains” (this
time represented by causes, rather than forms, of action), it is in my judgment
important not to exclude concepts of concurrent liability which the courts of
equity have over the years handled without difficulty. I can see no good reason
for holding that the existence of a contractual right is in all circumstances
inconsistent with the co-existence of another tortious right, provided that it
is understood that the agreement of the parties evidenced by the contract can
modify and shape the tortious duties which, in the absence of contract, would
be applicable. For these reasons, in addition to the much wider considerations
addressed by Lord Goff of Chieveley, I would dismiss the appeals. LORD MUSTILL. My Lords, I have had the advantage of reading
in draft the speech prepared by my noble and learned friend, Lord Goff of
Chieveley, and for the reasons which he gives, I, too, would dismiss the
appeals of the members’ agents and the managing agents with costs. [*207] LORD NOLAN. My Lords, I have had the advantage of reading in
draft the speech prepared by my noble and learned friend, Lord Goff of
Chieveley, and for the reasons which he gives, I, too, would dismiss these appeals
with costs. Appeals dismissed with costs. |