Establishing a Duty of Care in Negligence: CGL Group Limited v The Royal Bank of Scotland plc [2017] EWCA Civ 1073

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A lengthy recent review at Court of Appeal level of the threefold approach to find the existence of a duty of care in negligence. It pulls together all the key sources.
Beatson L.J. said,
59. (i) Introduction:
The difficulties of determining when a duty of care arises in respect of economic loss are well known. The general approach of the courts has been to identify organising concepts to express value judgments about whether a duty exists in the circumstances of an individual case. Adapting what Deane J stated in the High Court of Australia in Sutherland Shire Council v Heyman [1985] HCA 41 at [4], (1984-5) 157 CLR 424, at 497, while the general approach does not provide a criterion or criteria of liability, it seeks to identify unifying rationales. In Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2016] EWCA Civ 457, [2016] 1 WLR 3169 Longmore LJ at [17] stated that it has become customary to consider three tests or approaches which usually lead to the same answer and can be used as cross-checks on each other. These are: (1) whether the defendant assumed responsibility to the claimant; (2) the threefold test in Caparo Industries plc v Dickman [1990] 2 AC 605 which asks whether (a) loss was a foreseeable consequence of the defendant’s actions or inactions, (b) the relationship of the parties was sufficiently proximate, and (c) it would be fair, just and reasonable to impose a duty of care on the defendant towards the claimant; and (3) whether the addition to existing categories of duty would be incremental rather than indefinable.
60. The three tests or approaches referred to by Longmore LJ had been considered in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28, (“Customs and Excise Commissioners v Barclays”). In that case, the House of Lords unanimously held that a bank which had been notified of a freezing order against one of its customers owed no duty of care to the party which had obtained the order. It was stated that there is no single test or touchstone that may be used to determine whether a defendant owes a duty of care in respect of pure economic loss: see Lord Bingham at [4] – [8], Lord Hoffmann at [35], Lord Rodger at [51] – [53], Lord Walker at [69] and Lord Mance at [93]. Lord Bingham also stated (at [8]) that, regardless of the test applied, he considered it important to “concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole”.
61. Approaches or tests which take so many factors into account set a broad and relatively open-textured framework within which to assess the detailed factual circumstances and context of the particular case. The need to cross-check and the fact that the courts have often used the three tests interchangeably, means that there is some overlap between them, they are complementary, and they should not be considered in isolation from each other: see Patchett v Swimming Pool & Allied Trades Association Ltd. [2009] EWCA Civ 717, at [18] per Lord Clarke MR. Accordingly, I first consider the propositions in the authorities under each test that are relevant to the principal question for decision in these appeals bearing this in mind. I then summarise in broad terms the battleground between the appellants and the banks on duty of care, and then give my conclusions on the application of those tests to the facts of the three appeals before the court.
62. (ii) Assumption of responsibility:
63. In Henderson v Merrett Syndicates Ltd (No 1) [1995] 2 AC 145 the principle enunciated in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 in relation to negligent misstatements was extended to the negligent performance of services. Lord Goff stated (at 180) that the principle underlying Hedley Byrne was an assumption of responsibility by the defendant which “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”. Accordingly, a person who assumes responsibility to another person to perform a service and fails to do so with reasonable care may be liable for the loss suffered by that other person in relying on the assumption of responsibility. As Lord Rodger stated in Customs and Excise Commissioners v Barclays at [49], “assumption of responsibility” has had a chequered history, apparently falling out of favour in Smith v Eric S Bush [1990] 1 AC 831, 862, 864-5 and Caparo Industries plc v Dickman [1990] 2 AC 605, 628 and 637, but revived, largely by Lord Goff, in Henderson v Merrett Syndicates, White v Jones [1995] 2 AC 207 and in Spring v Guardian Assurance Plc [1995] 2 AC 296.
63. In Henderson v Merrett Syndicates Lord Goff (at 181) defended the concept for situations “equivalent to contract”. He stated that it provided its own explanation as to why there is no problem in such cases about liability for pure economic loss and indicated why in some circumstances an undertaking to furnish the relevant service may not involve an assumption of responsibility (the example he gave was an informal occasion) or it may be negatived by an appropriate disclaimer. Lord Goff also stated that “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 in asking whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff”.
64. Although, in Customs and Excise Commissioners v Barclays, Lord Mance (at [83]) considered that “assumption of responsibility” is “a core area of liability for economic loss”, it is clear from that case and the earlier criticisms that the concept is one that should be used with care and be kept within proper bounds. It does not provide a complete “answer” to all cases of pure economic loss: see Customs and Excise Commissioners v Barclays, per Lord Bingham at [4], Lord Rodger at [52], Lord Hoffmann at [35]-[38], and Lord Mance at [87]. In that case Lord Bingham stated (at [4]) that the “paradigm situation [is] a relationship having all the indicia of contract save consideration”. He also stated (at [4]) that he thought it correct to regard “an assumption of responsibility as a sufficient but not a necessary condition of liability, a first test which, if answered positively, may obviate the need for further inquiry”: see also Lord Rodger at [50] and Lord Walker at [73]. But that statement preceded his emphasis (see [60] above) on the importance of concentrating on the detailed circumstances of the particular case and relationship between the parties in the context of their legal and factual situation as a whole. Bearing these matters in mind, I turn to the other elements considered in determining whether a duty of care has arisen because of an assumption of responsibility.
65. It is now clear that in determining whether, in a particular case, responsibility has been assumed by a defendant, an objective test is applied: see Customs and Excise Commissioners v Barclays at [5], [35] – [36], and [86] per Lord Bingham, Lord Hoffmann and Lord Mance (although Lord Hoffmann did not use the word “objective”). As Lord Steyn stated in Williams v Natural Life Foods Ltd [1998] 1 WLR 830, at 835F-G:
“An objective test means that the primary focus must be on things said or done by the defendant or on his behalf in dealings with the plaintiff. Obviously, the impact of what a defendant says or does must be judged in the light of the relevant contextual scene. Subject to this qualification the primary focus must be on exchanges (in which term I include statements and conduct) which cross the line between the defendant and the plaintiff.”
66. As to reliance, in Caparo Industries plc v Dickman, in the context of statements in a company’s certified accounts, Lord Bridge stated (at 619E) that the inquiry into whether a duty of care exists concerns a duty owed by one party to another “to ensure that the accuracy of any statement which the one party makes and on which the other party may foreseeably rely to his economic detriment” (emphasis added). He had earlier referred to the damage being confined to the loss sustained by those who rely on the accuracy of the information or advice they receive as a basis for action. See also Lord Oliver at 635F and 638. In White v Jones [1995] 2 AC 207, at 274G Lord Browne-Wilkinson identified the need for reliance: “where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice”. It must also be established that it was reasonable for the claimant to rely on the defendant’s alleged assumption of responsibility: Williams Natural Life Foods at 837B. In Henderson v Merrett Syndicates, Lord Goff stated (at 180) that “reliance upon [the assumption of responsibility] by the other party will be necessary to establish a cause of action (because otherwise the negligence will have no causative effect) …” and that the necessary reliance on a defendant to exercise due skill and care may arise where a person entrusts the defendant with the conduct of his affairs, in general or in particular.
67. Lord Goff in Henderson v Merrett also stated (at 195 and 196C-D) that in a situation involving more than two parties, although in principle a party may assume responsibility to more than one person in respect of the same activity, the way the parties have structured their relationships may be inconsistent with an assumption of responsibility and that will make the existence of a duty less likely. Pacific Associates Inc v Baxter [1990] 1 QB 993 and Briscoe v Lubrizol Ltd [2000] ICR 694 are examples of such inconsistency.
68. In Pacific Associates v Baxter it was held that engineers acting for an employer to supervise the work of a dredging contractor were not under a duty of care to the contractor. They were not required by the terms of their contract with the employer to exercise due care to the contractors, were held to be acting solely for the employer and not to have voluntarily accepted any responsibility to the contractors in the way they performed their duties. Purchas LJ stated (at 1023) that the conclusion depended on the circumstances of that case, where there was an avenue enabling the contractor to recover from the employer. In those circumstances, he saw “no justification for superimposing on [the] contractual structure an additional liability in tort as between the engineer and the contractor”.
69. In Briscoe v Lubrizol it was held that insurers underwriting an employer’s permanent health scheme did not owe a duty of care to an employee where his employer declined to pay the employee because the insurer had rejected the claim. Their obligations were owed to the employer only. Roch LJ (at 705C-D) stated that a contractual regime setting out the parties’ responsibilities is “not necessarily fatal” to the imposition of a duty of care, but is “nevertheless a powerful indication against the existence of a duty”.
70. Pacific Associates v Baxter also shows that, where a contract forms part of the matrix of fact which is said to give rise to a duty of care owed to a third party, the court may be able to take account of exclusion clauses in that contract. Purchas LJ stated (at 1022):
“The presence of such an exclusion clause whilst not being directly binding between the parties, cannot be excluded from a general consideration of the contractual structure against which the contractor demonstrates reliance on, and the engineer accepts responsibility for, a duty in tort, if any, arising out of the proximity established between them by the existence of that very contract.”
71. In White v Jones, Lord Goff (at 268) stated that an “assumption of responsibility will of course be subject to any term of the contract between the solicitor and the testator which may exclude or restrict the solicitor’s liability to the testator under the principle in Hedley Byrne”. See also the many statements (see e.g. Lord Bingham’s set out at [60] above) about the need to concentrate attention on the detailed circumstances of the particular case, the particular relationship, and the context.
72. In Precis (521) Plc v William M Mercer Ltd [2005] EWCA Civ 114, [2005] P.N.L.R. 28 Arden LJ stated (at [26]) that “[t]he question of the assumption of responsibility cannot … depend on the terms of a private transaction between the claimant and a third party which is unknown to the defendant and which forms no part of the matrix of fact said to give rise to an assumption of responsibility”. She had previously stated (at [25]) that in Pacific Associates v Baxter it was clear that the claimant and the defendants knew of the exclusion clause before work commenced. Since it was found that the detailed facts militated against an express or implied assumption of responsibility, what was stated about the exclusion clause was not necessary for the decision. It is, moreover, difficult to reconcile with Lord Goff’s statement in White v Jones because that was not limited to situations in which the disappointed intended beneficiary knew of the terms of the contract between the solicitor and the testator. The intended beneficiary may not even know that he or she was an intended beneficiary.
73. (iii) The threefold test: The threefold test in Caparo Industries plc v Dickman at 617-618, 633, and 658 asks whether: (a) loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; (b) the relationship between the parties was one of sufficient proximity; and (c) in all the circumstances it would be fair, just and reasonable to impose a duty of care on the defendant towards the claimant. The test is well established and has been applied in many cases.
74. As to proximity, a relationship is akin to contract where two parties “are in contact with one another either directly or through their agents, and where, but for the lack of payment, a contract would have existed between them”: Lord Jauncey in Smith v Eric S Bush [1990] 1 AC 831. This is distinct from a “tripartite situation” where the defendant owes contractual duties to a third party; in such a case Lord Jauncey considered (at 871) that there will be no room for a contract between the claimant and the defendant, and hence no room for an analogous tortious duty.
75. In the disappointed testamentary beneficiary case of White v Jones, it was important (see Lord Goff at 259) that if a duty were not recognised, the only person who might have a valid claim (the testator) suffered no loss, and the only person who suffered a loss (the intended beneficiary) had no claim. Lord Goff considered it to be a “point of cardinal importance” that a lacuna in the law would exist if recovery were not permitted: 260A, 265 and 268. See also Sir Donald Nicholls V.-C at 224. Lord Goff emphasised (at 268B) that the Hedley Byrne principle “cannot, in the absence of special circumstances, give rise on ordinary principles to an assumption of responsibility”. He had earlier stated (at 260) that the duty was imposed to give effect to the “strong impulse for practical justice” … “to repair the injustice to the disappointed beneficiary”.
76. (iv) The incremental test: The source of this test is the observation of Brennan J in the High Court of Australia in Sutherland Shire Council v Heyman [1985] HCA 41, at [14] (1985) 60 ALR 1 at 43-44, (1984-5) 157 CLR 424, approved by Lord Bridge, Lord Roskill and Lord Oliver in Caparo Industries plc v Dickman at 618, 629 and 634. The formulation of Phillips LJ in Reeman v Department of Transport [1997] 2 Lloyd’s Rep 648, 677, is that:
“When confronted by a novel situation the court does not … consider [the stages of the three-fold test] in isolation. It does so by comparison with established categories of negligence to see whether the facts amount to no more than a small extension of a situation already covered by authority, or whether a finding of the existence of a duty of care would effect a significant extension to the law of negligence”.
In Customs and Excise Commissioners v Barclays at [4] Lord Bingham stated that “the incremental test is of little value as a test in itself and is only helpful when used in combination with a test or principle which identifies the legally significant features of a situation”.[8] The focus of the appellants in the appeals before the court was not on the incremental approach.

For Customs & Excise v Barclays see here.