The right of recovery is a lottery if you have no contract
Last week we saw how a potential defendant might gamble on the type of damage a plaintiff is likely to suffer before deciding whether to risk liability in tort. Recent developments in this area have been so dramatic that, in the absence of a contract, the very existence of a right of recovery against a wrongdoer might be seen as something of a lottery.
Before the l930s, when the distressed Ms Donoghue consumed ginger beer bought by a friend from a bottle alleged to contain the decomposing remains of a snail, suppliers owed those with whom they had no contract no duties whatsoever. Then the courts were concerned to prevent a single incident giving rise to an indefinite number of claimants with multiple claims.
Despite their concern, however, the tide of tort swelled, largely with decisions involving defective buildings. (Here Lord Denning set the ball rolling in Dutton v Bognor Regis (aj 11.3.99)). The high-water mark was reached in the l980s with cases such as Junior Books v Veitchi, where the plaintiff employer recovered more or less the same damages in tort from the flooring sub-contractors as if there had been a contract between them. From about l985 the tide turned, and since Murphy v Brentwood it has been increasingly difficult to recover damages, particularly in cases involving defective buildings, without a contract.
The dynamic factor behind this revolution is not the scope of the tortious duty, but the definition of recoverable damage. Generally in tort, a plaintiff can recover for actual physical injury to person or property but not for financial or economic losses. In its heyday the law of tort welcomed damage and defects to buildings and the like into the fold of actionable damage. In Murphy v Brentwood the House of Lords described this sort of damage as economic loss and the door of tort was shut firmly in its face.
There is an exception to the rule that economic loss is irrecoverable in an action in tort, and it is to be found in the cases involving 'a special relationship': a term first coined in Hedley Byrne v Heller. Where the plaintiff is close enough to the defendant or relies upon information supplied in a professional context, the plaintiff can claim for financial losses even in the absence of a contract. It will come as no surprise, therefore, that recent developments in the law of tort have all involved allegations of special relationships.
Although none of the post-Murphy cases are construction cases, they boil down to a familiar enough question: 'Does A (an architect, for example), a specialist who is engaged by B (the employer) to provide a service, owe a duty to C (the tenant) if A fails to perform and causes C a loss?' In White v Jones, for example, disappointed beneficiaries (C) claimed against a solicitor (A) for failing to change their father's (B) will in their favour before he died. They said there must be something very wrong with the law if they did not succeed.
But the House of Lords was divided. As Lord Mustill explained, there were many situations in which the expectations of a potential beneficiary were defeated by an untoward turn of events.
Furthermore, they were seeking to found a liability on the basis that the solicitor had not done something they had never asked him to do. Ultimately they were successful - but only just. The uncertainties of this area are such that the Cs of this world would be well advised to avoid it altogether and, for the time being at least, ensure that their positions are protected by contract.