The Neighbor Principle and the Two Tier Test in Establishing Duty of Care in Negligence Law

Introduction

If Llewellyn is to stand any chance of success he must firstly prove that:

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• that the parties involved owed him a duty of care, that the parties were in breach of this duty;
• that those relevant breaches caused Llewellyn’s damage, both in fact and in law, and;
• that the law will allow the recovery of any losses Llewellyn may have incurred.

It is convenient to examine the success or otherwise of Llewellyn in relation to Josiah, Kelly and “Marketweb” separately from Nixon.

The general principle with regards to the establishment of a duty of care is the neighbor principle as formulated in Donoghue v Stevenson:

“One must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour.”

The scope of this principle was expanded considerably by Lord Wilberforce in Anns v Merton London Borough Council with the introduction of a two tier test.

The effect of this two tier test was to expand considerably the scope of the tort of negligence, but the test has been the subject of much judicial criticism, having being overruled on its facts by the House of Lords in Murphy v Brentwood District Council. In Murphy the House noted that reservations had been expressed regarding the two-tier test and stated a preference for the incremental approach of Brennan J in Sutherland Shire Council v Heyman. It was this approach, suggests J Convery, that ultimately led to the modern formulation of the duty of care in Caparo Industries Pcl v Dickman. However, the courts have been reluctant to impose a duty of care with regards to the careless making of statements as opposed to liability for careless acts. Despite this, in Hedley Byrne v Heller the House of Lords held that a duty to take care in making statements could arise. Normal Donoghue principles were not to be applied as a strict application of these principles would have led to too great a liability. Instead, it was held that a duty of care would arise where there was a special relationship between the parties. For such a relationship to arise:

1.  The representor must have a special skill.
2.  The representee must reasonably rely on the misrepresentation.
3.  The defendant must have some special knowledge of the type of transaction in question: eg Smith v Eric Bush

It is these criteria which must be utilised in assessing the respective positions of the parties alongside more modern criteria which will be discussed later. As regards the first criteria, it is clear that Josiah, an investments advisor and the long-standing chair of the planning committee, possesses a special skill, as does Kelly being a countryside planning ambassador. Although the Privy Council in Mutual Life v Evatt [1971] took a narrow view of this criterion, the Court of Appeal has followed the more “liberal minority” view: Esso Petroleum v Mardon; Howard Marine and Dredging v Ogden. As Lord Denning MR stated, when distinguishing Bisset v Wilkinson in Esso; special skill could manifest itself in the fact that the parties are not “equally able to form an opinion”. Therefore it is submitted that Kelly, Josiah and Market web satisfy the first criteria of the threefold test. Establishing the second criteria is potentially problematic. The Privy Council has, again, taken a very narrow view of this criterion: Royal Bank Trust v Pampellonne. However W.A Seavey proposes a somewhat simplified approach; that it is reasonable to rely on a person who “possesses more than the normal knowledge” in any given area of expertise. If this submission is to be accepted then, again it appears that the second criterion is satisfied with respect to all three parties. It should also be noted that if such reliance is absent, the plaintiff may, in exceptional cases, rely on ordinary Donohue principles as was established in Ross v Caunters ; White v Jones. However it appears from the facts that this is not appropriate.

As regards the third criteria, it is submitted that the facts indicate Josiah and Marketweb have prima facie special knowledge of property transactions. Kelly, however does not appear to have special knowledge of property transactions, therefore it is submitted that she does not owe Llewellyn a duty of care as regards any negligent misstatements, and any action against her is likely to fail. In addition it is likely that the “fair and reasonable” requirement laid out in Caparo. Lord Bingham commented:

1.  " The requirement cannot, perhaps, be better put than it was by Weintraub C. J. in Goldberg v Housing Authority of the City of Newark (1962): " Whether a duty exists is ultimately a question of fairness. The inquiry involves a weighing of the relationship of the parties, the nature of the risk, and the public interest in the proposed solution".

Based on this analysis, it seems unfair to impose a duty with respect to “friends”. Indeed this is the position occupied by C Witting, whilst the opposite, he contends, can be said for relationships of a business nature. It is thus submitted that based on the three criteria, Josiah owes Llewellyn a duty of care as regards any negligent statements he may make. Although it appears that Market web may be in the same position, recent case law may indicate otherwise; modern case law seems to prefer tests based on " proximity of relationship " in conjunction with a requirement that the duty imposed is "fair and reasonable": Jain v Trent Strategic Health Authority The case of Patchett v Swimming Pool and Allied Trades Association Ltd. is closely analogous to the present facts. The claimants were looking to build a swimming pool and they (the claimants) came across the website of the Swimming Pool & Allied Trades Association and the works duly commenced. Prior to completion, the secondary retailer became insolvent and ceased trading, leaving the works unfinished. The dispute between the parties arises out of statements made on SPATA’s website: it stated that “installation will be completed fully to SPATA Standards – come what may!”.In court, Worster J held that SPATA did not owe the Patchetts a duty of care in making certain statements on its website.

The essential reason given was that while the defendant no doubt knew that the representations on their website would likely be acted upon, it would not expect consumers to do so without further enquiry. The court found that the third criteria necessary for establishing a relationship between the maker of a statement and the recipient who relies on that statement, as set out in the case of Hedley Byrne v Heller, was not satisfied: “It is known, either actually or inferentially, that the advice [or representation] is likely to be acted upon by the advisee without independent inquiry.”

It is submitted then, that the same principles can be applied to the facts at hand. Although Marketweb would have expected consumers to act upon their advice, they would not expect consumers to do so without further enquiry. Thus, it could be argued that, despite fulfilling the three criteria stated above, the third criteria for the original Hedley Byrne v Heller test is not satisfied. Therefore it is submitted that Marketweb does not owe Llewellyn a duty of care as regards any negligent misstatements they may make, and any action by Llewellyn is likely to fail on this basis. Having established the respective positions of the parties as regards duty of care, it is now necessary to examine if they are in breach of that duty.

In the case of all three parties, it is submitted that any negligent misstatements would arise from the omission to mention the development of the club complex despite the lodging of the plans two years prior. The issue of an omission rendering a statement negligent was cogently examined in Banque Financiere de Late Cite CA v Westgate Insurance Co where it was stated:

1. 2. “Can a mere failure to speak ever give rise to liability in negligence under Hedley Byrne principlesIn our view it can, but subject to the all-important proviso that there has been on the facts a voluntary assumption of responsibility in the relevant sense, and a reliance on that assumption”

It was generally established that with regards to careless acts the law will impose liability, but it will not impose liability in respect of omissions; see for example the speech of Lord Goff in Smith v Littlewoods Organisation where his lordship stated this general rule and identified four exceptions. By analogy, in negligent misstatement, one might assume while liability may arise in respect of a negligent misstatement, no liability will arise from a failure to speak. Essentially, the statement from Banque Financiere de Late Cite CA v Westgate Insurance Co [1989] states that no liability will attach to a failure to speak subject to just one exception, namely where there has been a voluntary assumption of responsibility and reliance upon that assumption.

One may begin by asking what the Court of Appeal meant by the phrase ‘voluntary assumption of responsibility’, as in Smith v Eric Bush the House of Lords rejected the view stated in Hedley Byrne v Heller, that a duty of care with regard to negligent misstatement (a spoken misstatement) arose from a voluntary assumption of responsibility and this view was repeated by the House of Lords in Caparo Industries v Dickman. In Smith it was said that the phrase “assumption of responsibility” can only have any meaning if it is understood as referring to the circumstances in which the law will have deemed the maker of the statement to have assumed responsibility to the person who acts on the advice, and by amending the “voluntary” element, essentially has turned the test from a subjective to an objective one.

Thus, what was said in Banque Finaciere could be rephrased by saying that a failure to speak can give rise to liability only where the duty to speak arises. It then seems appropriate to apply this interpretation to the facts at hand; that is an omission to speak. It is thus submitted that the law would impose such a duty on Josiah, given the ruling in Ried v Rush & Tompkins. In this case Ralph Gibson LJ stated that a duty not to cause economic loss may be owed even without an assumption of responsibility by the person giving advice or reliance by the person receiving it, although both May LJ and Neil LJ reserved their opinions on this point. Therefore, it is submitted that Josiah is in breach of his duty to Llewellyn.

It is clear from the facts of the question that the loss suffered by Llewellyn is pure economic loss. It must therefore be considered in which situations the law will allow for such loss. As W Bishop states “the law of torts severely restricts recovery by a plaintiff for financial losses suffered in consequence of the negligent conduct of the defendant”. The traditional approach of the courts was to deny recovery of economic loss that was not consequent upon damage to the person or property of the plaintiff: Spartan Steel & Alloys v Martin. However, in Junior Books v Veitchi the House of Lords allowed recovery for economic loss suffered by the plaintiff when a firm of contractors, with whom the plaintiff had no contractual relationship, laid a floor defectively. It was held that there was such a relationship of proximity between the plaintiff and the defendant that the plaintiff owed the defendant a duty of care to avoid economic loss.

Junior Books was decided when the two-tier test of Lord Wilberforce in Anns v Merton London Borough Council  was still used to determine the existence of a duty of care and the House of Lords relied heavily on the fact that the plaintiff had nominated the defendant to lay the floor and had relied on the defendant to carry out his work properly, that this reliance was known to the defendants and that the damage was a direct and foreseeable result of the defendants’ negligence. Interestingly, Lord Brandon dissented on the grounds that the decision effectively created contractual obligations while circumventing contractual concepts such as privity and consideration.

Subsequent cases have not followed Junior Books; in parallel with the retreat from Anns, which formed the basis for Junior Books, the latter case had been the subject of much judicial criticism. In Muirhead v Industrial Tank Specialities Junior Books was not followed and in Aswan Engineering Establishment v Lupdine it was said that “where the defect renders the product less valuable the plaintiffs remedy lies in contract, and where the defect creates a danger to others the remedy lies in Tort” and that Junior Books was the “first to cross this line”.

In D&F Estates v Church Commissioners Lord Bridge stated that the consensus of judicial opinion seemed to be that Junior Books can not be regarded as laying down any general principle. In Simaan General Contracting v Pilkington (no 2) Dillon LJ went even further and said that the case had been subject to so much discussion and analysis that the case cannot be regarded as a useful pointer to any development of law.

Given the extensive criticism of Junior Books, Llewellyn must be advised that there is little chance of successfully suing Josaih in Tort for the economic loss he has suffered. Dependant on the facts of the question, a remedy may lie in contract.

The tortuous liability of Nixon

As mentioned previously, the courts have been reluctant to impose a duty of care as regards the careless making of statements as opposed to liability for careless acts. Applying the three fold test laid out in Hedley (as regards negligent misstatements) to the facts of the question, it appears that none of the constituent categories are satisfied when considering Nixon. It is not evident that, besides being a “renowned gossip”, Nixon posses any special skills, and it is likewise submitted that he does not have any special knowledge of the transaction in question. In addition to this, if Nixon is a “renowned gossip”, then it is submitted that Llewellyn cannot be said to reasonably rely upon his statements, thus failing to fulfil the third requirement of the Hedley Byrne v Heller test.

The use of Twitter by Nixon also raises issues with regards to his liability. In Caparo Industries v Dickman [1990] the House of Lords considered the situation where a person puts a statement into general circulation, as opposed to the situation where the defendant is aware of the transaction the plaintiff contemplated, knew the advice would be communicated to the Plaintiff and knew it was likely that the plaintiff would rely on this advice (as, for example in Smith v Eric Bush). In the former case it was held that no duty would arise as the essential requirement of proximity was missing. It is submitted that this principle can be likewise applied to the present facts.

Finally, it is clear from the language in Nixon’s tweet is couched in that of an opinion. As Steven J. Weingarten states: “the plaintiff’s reliance on a statement will generally not be seen as justifiable if he relies on an “opinion” as opposed to a statement of fact”. It is therefore concluded that based on the principles discussed, any action taken by Llewellyn against Nixon is likely to fail.

Bibliography

1. W. Bishop “Economic Loss in Tort” 2(1) Oxford Journal of Legal Studies (1982)
2. J. Convery, “Public or PrivateDuty of Care in a Statutory Framework: Stovin v Wise in the House of Lords” 60 (4) Modern Law Review (1997)
3. P. Fargo, “Current Legislation, Decisions, and Publications”17 Forum 533 (1981-1982)
4. A.L. Goodhart, “Liability for Innocent but Negligent Misrepresentations” 74(2) Yale Law Journal (1967)
5. W.A. Seavey, “Principles of Torts” 56 Harvard Law Review (1943)
6. S.J. Weingarten, “Tort Liability for Nonlibelous Negligent Statements” 93(4) Yale Law Journal (1984)
7. C. Witting, “Duty of care: An analytical approach” 25 (1) Oxford Journal of Legal Studies (2005)

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