Lord Denning’s Theory of Everything: An Analysis of Remoteness in Tort and Contract Law

Introduction

Albert Einstein dedicated the last thirty years of his life to the pursuit of proving the Theory of Everything. This idealistic and ultimately fruitless concept saw the attempted unification of the two foundational theories of physics: General Relativity and Quantum Field Theory. Einstein’s failure and the failure of all subsequent physicists to make such a unification has led many to acknowledge that some subjects are simply meant to stay separate. It is submitted that Lord Denning’s attempt in Parsons^[1]to square tort and contract law’s doctrines of foreseeability into a neat test is no less quixotic than the Theory of Everything and thus, this essay will argue that Irish law should instead follow Lord Reid’s more realistic approach in The Heron II.^[2]

 

Foreseeability Undergirding Remoteness in Tort and Contract

A common thread in both tort and contract is the question of whether the damage caused by the defendant’s tort or breach of contract is too remote for the defendant to be liable for the same? In answering this question, both tort and contract law have turned to the concept of foreseeability.^[3]

In common vernacular, foreseeability is defined as a subjective awareness of possible future occurrences and implies an ability to plan for those future possibilities.^[4]Within law, foreseeability derives its substance from the concepts of fault and choice. The logic being that someone who chooses not to avoid a harmful consequences, foreseen by them to be caused by their actions, will be held at fault.^[5]The purpose of foreseeability for both tort and contract is to define the point on the continuum between responsibility and remoteness beyond which the defendant has no liability.^[6]

Tort and contract, as a rule, do not look into the minds of the real contract-breaker or real tortfeasor.^[7]Instead, they take an objective approach by using the reasonable person standard, such that a defendant will be liable for damage that a reasonable person would have foresaw and avoided.^[8]This has proven to be a very effective tool in deciphering remoteness because it circumvents the administrative difficulties with proving subjective mental states, establishes generalized standards of conduct to be used in tort and protects reasonable expectations between contracting parties.^[9]

However, this shared objective approach to remoteness, although effective, is not perfect and can often be problematic. Namely, it can impute foreseeability to an unaware defendant who actually did not foresee the risks, treating him as though he did and thus, expanding the justification of liability beyond the scope of personal wrongdoing.^[10]Moreover, Hoffman argues that, in the case of contract, foreseeability is guilty of being too formulaic and indefinite.^[11]In Transfield^[12], Hoffman held that the courts ought to consider the extent(as opposed to what kind) of liability for compensation a reasonable person would have assumed responsibility for when making the contract.^[13]He claimed that the courts have to go further in their establishment of remoteness and that the orthodox position is merely a superficial and formulaic explanation that acts like a deus ex machinawithout really divulging the reasoning behind why some consequences are deemed foreseeable and others are not.^[14]

This piece submits that, even though Hoffman’s interpretation of remoteness is somewhat dubious, namely due to the practical difficulties regarding availability of evidence,^[15]his perspective acts as an illustration of the following point: foreseeability is not a hermetic concept and not only does it vary depending on the category of law, but indeed it is individual to the facts of each and every case.

 

Disparity in Tort and Contract’s Application of Foreseeability

As Lord Denning rightly points out, there is a lot of unnecessary confusion surrounding tort and contract’s application of foreseeability due to semantic distinctions.^[16]It is argued that the distinction between what a tortfeasor “foresees” and what a contract-breaker “contemplates” is fallacious because there is no way the courts can quantifiably measure the difference of thought either person gives to a potential consequence. It is also argued that the distinction’s symbolic value, serving as a linguistic demarcation between tort and contract, is unnecessary as their differences are apparent from their alternative stipulations of probability.^[17]

The Heron II is considered the authoritative precedent on the orthodox position concerning remoteness in tort and contract. The House of Lords held that, in the case of tort, the court, in determining whether the tortfeasor is liable, has to consider whether the consequences were of such a kind that a reasonable man, at the time the tort was committed, would foresee them as a very unlikely to occur.^[18]In the case of contract, the defendant will be found liable if they, at the time of making the contract, ought reasonably to have contemplated (foresaw) that the consequences of their breach of contract would be not unlikely.^[19]It is clear from this positon that the applications of foreseeability in tort and contract are not the same and that the test in contract is far narrower than that of the wide liability imposed by tort.^[20]

 

Analysis of Lord Denning’s Position

In Parsons, Lord Denning proffered a new formulation of remoteness to be applied equally in both tort and contract law. This new formulation essentially bifurcated the standards of foreseeability into two groups: losses for physical damage and economic losses.^[21]In the former class of case, Lord Denning applies the tort standard, maintaining that a contract-breaker will be liable if, at the time of the breach, the consequences that ought to have been foreseen were of a slight possibility. In the latter class of case dealing with economic loss, Denning maintained the contract-breaker will be liable if their consequences, at the time of the contract, ought to have been contemplated (foreseen) as a serious possibility.^[22]

Lord Denning’s policy behind his new distinction and indeed new perspective on remoteness is no doubt, on the surface, a laudable one: that it would be absurd for a different result to be achieved based on whether the action is in tort or contract.^[23]However, it is unclear how this distinction and the squaring of tort and contract’s degrees of foreseeability solves this problem. Denning gives examples of how liability in tort is too wide and notes how it is inconsistent that a manufacturer is liable to the ultimate consumer in tort but not in contract.  Moreover, he gives an example of a contractual and gratuitous hospital/patient relationships and notes that it is wrong that the former can sue in contract and the latter in tort, and that even though the injured party suffers the same damage, they would face different tests for remoteness. It is submitted that there is actually no real iniquity in this orthodox position as the injured party in the former contract case, if unsuccessful at the narrower threshold, can have recourse to the wider test for remoteness in tort. Obviously, the tort party would never have been able to sue for breach of contract, nor should they, because there is no contractual relationship.

Another argument in favor of Denning’s position, which maintains that remoteness in tort and contract should be codified, is that it is sometimes unclear whether an action comes under tort or contract. McDowell contends that this is no reason to collapse the two into a single test^[24]and it is submitted that Lord Scarman arriving at the same result as Denning suggests that the orthodox position can be navigated through sufficiently.

The most important criticism of Lord Denning’s delusional position is its complete disregard for the fundamental differences that exist between tort and contract. As Scarman notes, there is no case law supporting such a codification.^[25]By creating a complete equation of the tests Denning upsets the crucial understanding that in contract, the critical time for foreseeability is at the time of the making of the contract and not at the time of breach.^[26]This derives from the fact that a contract cannot be unilaterally altered after it has been made and thus it must be what is foreseeable at the time of the contract. It is argued that these fundamental distinctions, which have been outlined above, are significant and as a result of them, it is illogical and illusory to contend that remoteness can be equated in tort and contract.

 

Analysis of Lord Reid’s Position

The question is why should contract have a much narrower threshold than that of tort? It is argued that there are numerous reasons as to why contract law should impose narrower degrees of remoteness for damages than tort for compensation. The first reason is that the nature or origin of legal obligation in tort and contract are completely different. In tort, a duty of care is imposed generally on the population deterring them from engaging in,inter alia, negligent or fraudulent behavior. Due to this generality tort needs normative standards of conduct such as the reasonable man. As illustrated by Transfield, contract does not mesh with objective standards as well as tort. This is because, in contract, the nature of the obligation is a voluntary agreement between the parties and therefore, the duty of care can be highly individualized.^[27]It appears obvious that contract should not be constrained by strict normative standards of conduct as the duty of care is often not normative in nature. It must be more deferential to the defendant and cannot judge him by a strict generic norm because the defendant may have atypical obligations arising from the voluntary agreement.^[28]In other words, it is unfair to force contract to act as a housecat when it is really a tiger, so the law must compromise and let it be governed by the conduct of a lynx.

Another salient reason for narrow liability in contract, providing the fulcrum for Lord Reid’s judgment, is that in contract, if one party wishes to protect himself against a risk, which to the other party would appear unusual, he can direct the other party’s attention to it before the contract is made. This would allow them to assume responsibility for said risk.^[29]It can be said that this reasoning is first-rate as it incorporates the fundamental legal values of individual autonomy and freedom of contract. It acknowledges that foreseeability in contract is considered at the time of the contract and that the consequences foreseeable to the defendant are also foreseeable to the injured party and therefore the responsibility ought not to be cast entirely onto the defendant.

Finally, this position of having a narrower liability in contract is logical considering the difference between tort and contract’s remedial measures. Tort compensation is retrospective and focuses on returning a plaintiff to the position they would have been had the tort not occurred.^[30]Conversely, contract focuses on putting the injured party in a position they would have been in had the contract not been breached and aims to give them the benefit of the bargain.^[31]It is argued that the damages available in contract are far more speculative and discretionary than compensation in tort and thus, there should be a higher threshold for contract than tort. It is for the above reasons that this piece suggests Irish law should follow Lord Reid’s position.

 

Conclusion

This piece has analyzed and critiqued the common thread of foreseeability that undergirds both tort and contract and it made the point that foreseeability is necessarily fluid and cannot easily be condensed into a single test. The recommendation is that semantic distinctions between ‘contemplation’ and ‘foreseeability’ ought to be discarded. It is illustrated how tort and contract are fundamentally different categories of law with different needs and accordingly this essay accepted Lord Reid’s position which recognizes and incorporates said differences. Finally, the analysis of Lord Denning’s position and ultimately concluded that we ought to recognize that remoteness in tort and contract must not be equated because they are substantively different and require different levels of remoteness.

 

 

[1]H Parsons (Livestock) Ltd v Uttley Ingham & Company Ltd [1978] QB 791

[2]C Czarnikow Ltd v Koufos (The Heron II) [1969] 1 AC 350

[3]Banks McDowell, “Foreseeability in Contract and Tort: The Problems of Responsibility and Remoteness” (1985) 36 Case W. Res. L. Rev. 286, 288.

[4]ibid 290.

[5]ibid.

[6]ibid 296.

[7]Parsons (n 1) 792.

[8]McDowell (n 3) 291.

[9]ibid.

[10]ibid.

[11]Lord Hoffmann, ‘The Achilleas: Custom and Practice or Foreseeability’ (2010) 14(1) Edin LR 47.

[12]Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2008] UKHL 48.

[13]Hoffman (n 11)

[14]ibid. 55.

[15]Mark Stiggelbout, ’Contractual Remoteness, ‘Scope of Duty’ and Intention’ [2012] LMCLQ 97.

[16]Parsons (n 1) 794.

[17]John Cartwright, “Remoteness of Damage in Contract and Tort: A Reconsideration” The Cambridge Law Journal, Vol. 55, No. 3 (Nov., 1996) 488, 493.

[18]Heron (n 2)

[19]ibid.

[20]Cartwright (n 17) 493.

[21]Parsons(n 1) 794.

[22]ibid.

[23]Demetrios Hadjhambis, “Remoteness of Damage in Contract” (1978) The Modern Law Review 41 4 483.

[24]McDowell 311.

[25]Hadjhambis (n 28) 485.

[26]Ibid 486.

[27]ibid.

[28]McDowell 311.

[29]Heron (n 2) 353.

[30]Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158.

[31]Ibid.