Essay: Differences and similarities between rights and obligations in contract and tort

The law of obligations is traditionally divided into two categories – contractual obligations, which are thought of as being entered into voluntarily and owed only to the parties contracting; and obligations in tort, which are owed to a larger class of people and thought of as being imposed by law (Beatson {2002} – Ansons Law of Contract).

A contract is formed where there is an offer, acceptance, consideration and an intention to create legal relations. The parties’ obligations are fixed by the terms of the contract. An example can be found in Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256.

Conduct amounts to an offer if a reasonable person would construe it as such, and this may be regardless of the intention of the parties (Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256, Smith v Hughes (1871) LR 6 QB 597). Acceptance is similarly viewed objectively by the courts. In McCutcheon v David MacBrayne Ltd (1964) 1 WLR 125, Lord Reid states, “the judicial task is not to discover the actual intentions of each party; it is to decide what each was reasonably entitled to conclude from the attitude of the other”. Again, this shows obligations are not necessarily ‘created by the parties to the contract’ but defined by the Courts’ intepretation of the parties’ conduct. The interpretation may not correspond with the obligations each party thinks they are undertaking and the rights each party thinks they are acquiring at the time of entering into the Contract. Holmes sums this up by saying, “nothing is more certain than that the parties may be bound by a contract to things which neither of them intended” (OW Holmes {1897}, The Path of Law).

Further, terms may not be expressly agreed between parties but may be implied into the contract by the courts. For example, in Hutton v Warren (1836) 1 M & W 466, an outgoing tenant farmer was entitled to an allowance for seed and labour used in the last year of his tenancy even though his lease did not specify this, as the term was held to be implied as it was the custom in the locality. In Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association (1969) 2 AC 31, it was a previous course of dealing which led the House of Lords to conclude that terms were incorporated into a Contract. These terms were not expressly agreed and were not the intention of the Buyer.

Terms of the Contract that appear to be agreed may be restricted by law. In Houghton v Trafalgar Insurance (1954) 1 QB 247, an ambigious exemption clause was construed against the insurance company, using the contra proferentem rule that where a clause is ambiguous, it will be construed against the party trying to rely on it. Trietel explains further that where a very serious breach of contract occurs, regardless of the wording of any exemption clause, as a matter of substantive law the clause cannot be relied on (Trietel, {1999} p.4). It can also be seen that legislation such as the Unfair Contract Terms Act 1977 seeks to control what terms can be agreed between parties. Here, the law and the courts rather than the parties are creating and limiting rights and obligations in the contract.

Tortious liability arises from the breach of a duty fixed by law; this duty is towards those who are so closely and directly affected by our actions that we ought reasonably to have them within our contemplation (Donoghue Stevenson (1932) All ER Rep1). A breach of duty causing a loss may give rise to a claim for damages – however, liability can sometimes be limited or excluded entirely. Where a contract seeks to exclude liability for tort, the parties are fixing their duties rather than law.

Charles Fried explains “contract law is based on the promise principle, by which persons may impose on themselves obligations where none existed before. Tort law typically deals with involuntary transactions” (Fried {1981} Contract as Promise). It is arguable however that both in contract and tort law, the obligations are determined by the actions of the parties, and in both the actions are judged largely by reasonableness. In Froom v Butcher (1976) QB 286, Lord Denning (speaking of tort) states ‘In determining responsibility, the law eliminates the personal equation. It requires everyone to exercise all such precautions as a man of ordinary prudence would observe”. In contract also, the courts look objectively at the conduct of the parties and require them to act to a standard of reasonableness.

Fried speaks of tort law as ‘involuntary transactions’ but this is not really the case. Just as contracts are entered into ‘voluntarily’, a person for example driving a car or practicing as a nurse is surely consenting to the consequences of any negligent behaviour they may exhibit. The House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963) 2 All ER 575 confirmed that a person might voluntarily accept or undertake a duty of care, and in doing so enter into a relationship, which is ‘equivalent to contract’. This was confirmed in Henderson v Merret Syndicates (1995) 2 AC 145 where the agent had ‘assumed responsibility’ to the plaintiff, and Lord Goff commented here that the duty to exercise care and skill was both the same in contract and tort. The agent held himself out to be capable and so willingly consented to the obligation to display care and skill, just as he willingly entered into the contract.

Case law has shown that an obligation in tort can exist co-extensively with an obligation in contract. In Henderson v Merret Syndicates, the Agent was held to liability in both contract and tort for failure to take care to protect the interests of the Lloyds Names. Lord Goff concluded that the duty in tort was imposed by general law, and the contractual duty was imposed by the will of the parties.

A party can seek to limit or exclude their obligations in tort (e.g. negligence) by way of an exemption clause. In Canada Steamship Lines Ltd v R (1952) AC 192, the Court held that where a clause expressly exempts a party from liability for negligence, effect must be given to the clause and liability excluded. s2(1) of the Occupier’s Liability Act 1957 allows an occupier to ‘exclude his duty to any visitor or visitors by agreement or otherwise’.

In conclusion, whilst it is true that when parties enter into a contract they do so voluntarily, the terms of the contract may be limited, excluded, reinterpreted, implied into and construed by the Court in a way not comprehended by the parties. It cannot therefore be said that all ‘obligations are created by the parties to the contract’. Similarly, in tort, situations are willingly entered into by parties and obligations fixed by law can be limited or excluded altogether and so the level of duty is ‘fixed by the parties’ to an extent. Both contract and tort are subject to an objective test of reasonableness applied by the Courts. Interestingly, the High Court of Canada has observed that there is no distinction between contractual obligations implied into a contract and obligations in tort. Both amount to “an objective expectation defined by the Courts of the appropriate obligation and the correlative right” (British Columbia Hydro and Power Authority v BG Checo International Ltd (1993) 99 DLR (4th) 577, 585-6).

References

• Winfield & Jolowicz on Tort {16th Edition}, p.508)
• Robinson v Kilvert (1889) 41 ChD 88, CA) Reading 42
• St Helen’s Smelting Co v Tipping(1865) 11 HL Cas 642
• Hunter v Canary Wharf Ltd 1997) 2 All ER 426)
• Cambridge Water Co v Eastern Counties Leather plc (1994) 1 All ER 53) –
• Wheeler v Saunders (1996) Ch 19). reading 45
• Gillingham Borough Council v Medway (Chatham) Dock Co Ltd (1993) QB 343 – referred to in Wheeler v Saunders (1996) Ch 19). reading 45
• Kennaway v Thompson (1981) QB 88 – reading 46
• A G v PYA Quarries Ltd (1957) 2 QB 169.referred to in British Celanese Ltd v A H Hunt (Capacitors) Ltd 1969 2 All ER 1252 – Hepple p.798-799
• Unit 29, p.202
• s.222 Local Government Act 1972
• (Donoghue Stevenson (1932) All ER Rep1,
• Caparo Industries v. Dickman (1990) 1 All ER 568)
• (Blyth v Birmingham Waterworks (1856) 11 Exch 781)
• example (Overseas Tankship (UK) Ltd v Morts Dock and Engineering Co Ltd, The Wagon Mound (1961) 1 All ER 404) in hepple p.400
• (A G Securities v Vaughan (1988) 3 All ER 1058) – reading 52
• R v Ireland (1997) 3 WLR 534 – reading 58
• Unit 31, p.277
• Kubach v Hollands (1937) 3 All ER 907) hepple p621
• s2(3) Consumer Protection Act 1987 Hepple Howarth p.636).
• Donoghue Stevenson (1932) All ER Rep 1 hepple p. 28-35
• Murphy v Brentwood District Council (1990) 2 All ER 908 hepple 590-591
• Beatson, J. {2002} – Ansons Law of Contract) 28th Edition 2002 Oxford University Press
• Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256
• Smith v Hughes (1871) LR 6 QB 597 in smith/thomas p.124-7
• Nicolene v Simmonds (1953) 1 All ER 822
• Hillas v Arcos (1930) 147 LT 503
• McCutcheon v David MacBrayne Ltd (1964) 1 WLR 125 in smith/tom p.159
• Holmes OW the path of law (1897) 10 Harv LR 457, 463
• Hutton v Warren (1836) 1 M & W 466
• Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association (1969) 2 AC 31
• Houghton v Trafalgar Insurance (1954) 1 QB 247
• Trietel, {1999} p.4) – reading 1 resource book 2
• Donoghue Stevenson (1932) All ER Rep1
• Fried {1981} Contract as Promise
• Froom v Butcher (1976) QB 286
• Chapeltown v Barry Urban District Council (1940) 1 KB 532
• Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963) 2 All ER 575
• Henderson v Merret Syndicates (1995) 2 AC 145
• Canada Steamship Lines Ltd v R (1952) AC 192
• White v Blackmore (1972) 2 QB 651
• s2(1) of the Occupier’s Liability Act 1957 (Hepple, p.556-557).
• Unfair Contract Terms Act 1977
• (British Columbia Hydro and Power Authority v BG Checo International Ltd (1993) 99 DLR (4th) 577, 585-6).

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