'Legal Problems': Dr Janet O'Sullivan

Well good afternoon, everyone, good to see you here. I’ve been asked to talk you through some legal problems to give you the idea of the kinds of problem questions that you might be expected to deal with in a supervision here in Cambridge, and I have chosen facts or factual scenarios that are within my own area of expertise. So Findlay is a criminal lawyer, I specialise in the law of contract and the law of tort, so civil wrongdoing, if you like, and so they’re the areas that my problems come from.
So, without further ado, hopefully you can see on that screen nicely, but I’ll read it out anyway. Mr Lear, an elderly man, you can see where I’ve got his name from, has a row with his three daughters, and makes a will leaving all his property to Battersea Dogs’ Home. Shortly afterwards he is reconciled with his daughters and decides to make a new will, replacing the previous one, leaving all his property to them equally. He instructs Burke, a solicitor to make his new will. Unfortunately, Burke forgets to deal with Mr Lear’s will. Six months later Mr Lear dies, and all his property passes to Battersea Dogs’ Home. Should his daughters have any legal rights? If so, against whom?
So, let’s start with the first question, do you think the daughters should have any legal rights here or should they just have to get used to being disappointed? So, any legal rights?
Participant: Yes.
Who thinks they should just have to get used to being disappointed? Okay, interesting, interesting, and you have divided much as the House of Lords did when faced with this almost exact set of facts, I’ve made one change to the set of facts from the real case, which is that the real man who fell out with his daughters made a will leaving all his money and property to the ex husband of one of the daughters, so really it was a rift, but it’s easier to think of it as a charity, so Battersea Dogs’ Home. So, most people in the room think that the daughters should have legal rights. Hands up if you think that their claim should be against Battersea Dogs’ Home? No. Hands up if you think their claim should be against Burke? Good, okay, so most of you, in fact all of you have narrowed it down to the way the law has dealt with this.
So, the first question to ask is what claim will the daughters be able to bring? So, can they sue anybody for breach of contract? Well, this is where it gets a bit difficult because there is a contract in play here, there’s definitely a contract, Mr Lear instructed Burke, a solicitor, to draw up a will for him, that is a professional contract, he will have paid or been billed by the solicitor. I imagine they won’t be brazen enough to send the bill given what’s happened, but it is a contractual situation. And let’s assume the solicitor is in breach of that, he’s left it six months without doing anything, he's in breach of contract. But the problem is we’ve got a rule in the English law of contract that you have to be a party to a contract in order to acquire rights under it, and here the parties to the contract were Mr Lear and the solicitor, Burke. His daughters were not a party to that contract, so they can’t sue Burke for breach of contract.
Interestingly, or not as the case may be, but it’s worth mentioning, the dead dad could potentially sue the solicitor for breach of contract. I know that sounds ridiculous, it does sound ridiculous, but it’s not ridiculous actually; dead people in the form of their estate that’s administered by their executors, so when you die any rights that you had at the time of your death pass to your estate, and your executors can pursue them in order to maximise the value of your estate. So, the executors could in theory sue Burke for breach of contract, but there’s a different problem there, which is they can only sue for damages for loss caused to Burke [Lear], and he’s no worse, I mean he’s dead anyway, but his estate is no worse off as a result of the solicitor’s negligence. The solicitor’s negligence hasn’t made the estate smaller, hasn’t sort of wasted or disposed of any of Burke’s [Lear’s] money and property, it’s just gone in the ‘wrong’ direction to Battersea Dogs’ Home, not according to his last instructions.
So, what we have here is what might be described as a bit of a black hole in the law of contracts, the people that have suffered the loss don’t have an action for breach of contract because they’re not a party to the contract, that’s the daughters. And the party to the contract who has a claim for breach of contract hasn’t suffered any loss, so they stand to make only nominal damages. So, the way the law has looked at this is to say, okay, the law of contract’s deficient here, maybe the law of tort can provide a solution, and in particular, the tort of negligence. I’m sure you’ve heard of the tort of negligence, you might have read a bit about it, but it’s the... I should backtrack slightly and say the word tort comes from the French word for wrong, and just like we’ve got lots of crimes like murder, theft and reckless driving or whatever it might be, similarly, we’ve got in the civil law lots of civil wrongs, torts, things like negligence, nuisance, defamation, trespass to the person and so on.
Here we’re thinking about the tort of negligence, which is by far and away the most important tort, and that is used whenever there’s negligent driving and someone’s run over, or medical negligence if you suffer harm as a result of doctor’s negligence or a defective apparatus in a factory causes you harm, whatever it might be. So, they’re kind of classic instances of negligence. Can anyone see any immediate difference between those instances and the position of these daughters here? So, people who’ve been run over by a negligent driver. Yes?
Participant: It’s not harmed them; it’s just prevented them from getting something.
Good, so you’ve got two ideas in one there actually, the main respect in which they’re different from your straightforward negligence case is that they haven’t suffered personal injury or damage to their property. So, the law of negligence is virtually always used for cases of personal injury and damage to property. Whereas here we’re talking about people who’ve suffered, let’s go with this for now, although your point is slightly different, but who’ve suffered financial loss, pure financial loss. Now, the law of negligence does exceptionally extend to cases where the defendant caused pure financial loss to the claimant, but that would normally be a situation a bit like this: Let’s make it that I’m a financial advisor, let’s say, and I negligently give you financial advice, you rely on it, and you lose money. That might be regarded as the paradigm situation, or I give a negligent credit reference or negligent tax advice, or whatever it might be, but a two-way, two-party situation like that where the claimant has relied on the defendant’s advice or expertise and suffered loss.
So, if we interrogate this set of facts, we can see that it’s really very different from that paradigm case. What difference did you mention just now?
Participant: That it hasn’t harmed.
Yes, so one way of looking at this set of facts is these daughters aren’t worse off financially, in fact, they simply didn’t get made better off, which is what would have happened to them if the new will had been executed by the dad. So, that doesn’t feel very tort like in a way because the law of tort is normally about people who are worse off as a result of the defendant’s wrongdoing, and you want to restore them to where they were to start with. But these daughters haven’t been made better off as a result of the defendant’s negligence, that just got completely ignored really in the real litigation on the basis that had the defendant done what the defendant should, had the solicitor done what they should, they had a 100 percent chance of inheriting the dad’s money, and so that was a sort of legitimate expectation. It’s as if they’re worse off, but the truth is they’re not. Any other differences from my classic sort of straightforward fact pattern of negligent advice that’s relied on by the claimant? Yes?
Participant: In those situations that you mentioned people were in direct contact, they directly asked for financial advice, and they replied, but here they probably had never met this Mr Burke.
Good, right, that’s a really good point, so in the situations I mentioned, there was direct contact between defendant and claimant, they asked for advice, they were given advice, or they asked for information, and they were given information. And one of the reasons why the law of negligence allows that situation to give rise to a remedy is that it’s so very close to being a contract, it’s closely akin to a contractual relationship, you know, come on, I ask you for something, you give it to me, that’s very close to contract, so we’re comfortable with that. But here there was no contact between the daughters and the solicitor, and crucially they didn’t rely on the solicitor. So, the normal fact pattern involves reliance by the claimant, that’s how they can make the hook between their loss and the defendant’s negligence, but here there wasn’t that reliance.
The other difference, and there are lots of differences, but the other obvious one is that in the situations I mentioned the defendant, let’s say professional advisor, has said something that turns out to be wrong. Whereas here, the solicitor just didn’t do his job at all, there’s no miss-statement or negligent false statements at all. So, the upshot is it’s really quite a long way away from the existing precedents in this area, and you know that the common law is a system based on precedent; the judges can’t just say we feel sorry for these claimants, so therefore, we’re going to give them a remedy. They have to bring their claim within the system of precedent, the existing rules, and it didn’t look very much like the existing rules.
But the House of Lords, this is before the days of the Supreme Court, but it doesn’t matter, the senior court thought the law was deficient. They pointed to the difficulties with the law of contract, these rules that meant there was a black hole that the daughters couldn’t sue for damages for breach of contract. If they’re told there’s no tort remedy either, look what happens. A probate solicitor, who takes money off people to draft wills for them can just ignore those instructions with impunity, safe in the knowledge that no one will be able to sue them if they don’t do it. Dead dad can’t sue because his estate hasn’t suffered any loss, and the daughters can’t sue either, and they thought that was such a great injustice because the rules on leaving money and property to your family is such an important feature of our society that they didn’t like the idea that the law of tort would leave the daughters with no remedy.
Remember I said the room split in much the same way as the House of Lords, by a majority the House of Lords said this (normally you need an assumption of responsibility by defendant to claimant in this situation, here there isn’t one, the only person the solicitor assumed responsibility to was his client, Mr Lear), but they said: as a matter of law we’re going to deem, whatever that means, we’re going to pretend that the assumption of responsibility to the client extended to his daughters to give them a claim, to give them the benefit of a duty of care owed to them. Now, the duty of care is only the beginning of their enquiry, they’ve also got to prove that the defendant breached that duty of care by acting unreasonably or carelessly or whatever, and it was accepted that he did because he did nothing about the instructions, he forget about drafting the will. It’s also got to be shown that that breach caused their ‘loss’ and again, it was accepted that of course it did, had the solicitor acted carefully the dad would have executed the new will and the daughters would have inherited.
So, that’s what the majority did, they extended the law, they created a new remedy. The minority would have taken the opposite view, they pointed out that the things that were wrong here were the restrictive rules of the law of contract, so we should be remedying them, not giving someone a tort remedy by the backdoor. And they also pointed out that this sort of undermines the very important probate rules, and I’m glad that nobody thought that Battersea Dogs’ Home should give up the money to the daughters because as the law stands at the moment, the last valid will prevails. So, it’s a really interesting case right on the border of where there’s a remedy. The other thing just to bear in mind about this before we move on is you see the effect of giving the daughters this remedy. The effect is that the dad’s estate, his money and property effectively doubles in value, his actual estate and money and property goes to Battersea Dogs’ Home, and a damages award of the same value goes from the solicitor or more likely from the solicitor’s insurance policy to the daughters. So, it does have the effect of sort of doubling the size of the man’s estate.
The other thing to notice about this before we move on is maybe you might be thinking what’s wrong here is that at the date of Mr Lear’s death we know for certain that he no longer wanted Battersea Dogs’ Home to inherit his estate, we know for certain that his intention at that point was to his daughters. I mean we don’t know it for certain because he might have changed his mind again the day before he died, but he certainly didn’t tell the solicitor to stop drafting, he didn’t revoke his instructions. So there were written instructions to the solicitor saying from now on my intention is to benefit my daughters. Maybe the law of probate should be relaxed there, maybe there ought to be some discretion on the part of the court to say actually, we know he didn’t make a new will in favour of the daughters, but we know that that’s what he intended, and funnily enough that’s what the Law Commission has been looking at is whether there should be discretion to relax the strict probate rules when it’s obvious that someone intended a will but they didn’t quite get the formalities right. I don’t know whether it would have helped here, but it might help other people in the future.
So, I think that’s quite a nice conundrum for lawyers. It’s always fun when there’s a triangle shape, it’s boring when there’s claimant and defendant, a sort of binary, two-party thing. Wherever you get a shape like a triangle, which is like here, dad, solicitor, daughters, the law becomes more complicated and more interesting.
Anyway, let’s look at something completely different, so here’s another problem that I have invented for you. So, what we have is Porko Limited has for many years operated a very smelly pig farm in a rural area of Camshire, so you get the picture, smelly pig farm. On the boundary of Porko Limited site is a family home, which was owned for the past two decades by Quirrell, an elderly man who was not troubled by the smell from the pig farm because he has a poor sense of smell, so you get the picture, in the past all was well because the man that lived near the pig farm had no sense of smell. Two years ago, Quirrell died, and his executors, see the previous case, his executors sold his house to Reenie at a discounted price to reflect the smell from Porko’s pig farm.
So, Reenie is our protagonist, our claimant, and estate agents have valued the house she bought lower than it would otherwise be because pig smell wafts across it, so she’s got a good bargain. As soon as she moved in, Reenie realised that the smell wafting over from the pig farm was intolerable. Porko, who run the pig farm, is adamant that it uses state of the art technology to keep the smell from the pig farm to a minimum. Nonetheless, Reenie wants the smell to stop and is now even more furious because her young son, Sniffler, has developed asthma as a result of the pig fumes. So, that’s the scenario, she owns the house now, she’s furious that it smells of pigs the whole time, her son has developed asthma. And the question is, should the law give Reenie and/or Sniffler a remedy, if so, what?
So, let me tell you something, I’m annoyed because every one of these I’ve done for the past quarter of a century people in your position have been given a piece of paper with the problems printed out, and I don’t know why that hasn’t happened this year, technology reigns and it’s failed. So, sorry that you don’t have those facts in front of you, but it’s hopefully pretty memorable facts.
So, let’s put Sniffler, the child with asthma to one side, and just think about Reenie. From what you know about the law of negligence from what we discussed in the previous problem, do you think that might be relevant to Reenie or there’s going to be a problem for her in suing for negligence?
Participants: An allowance was made discounting the house.
I see what you mean, so her purchase of the house was at market value, so she’s not lost anything financially that way, but I don’t think that there’s any suggestion that Quirrell and his executors breached a duty of care to her, they simply sold her their house. So, her action is going to be against Porko producing the smells. So, from that perspective, any problem with negligence here?
Participant: So, in terms of negligence, I would look at it from two sides, it could be the farm itself is committing negligence in terms of their operation, but because they are using state of the art technology to keep the smell out then it can be classified that they are reaching the expectations of duty of care.
Good, so there are in fact two reasons why the claim for negligence is not a runner, it’s a non starter. You’ve actually picked the slightly more difficult of the two reasons, well, they’re both good points, but you’ve picked a really good point, which is to say even if you in theory could sue in negligence on these facts, Porko are not in breach of a duty of care, they’re not at fault, which is what you absolutely need for a negligence action because they’ve used state of the art technology to keep the smell to a minimum, they’ve acted reasonably. So, that’s a very good point as to why a negligence action will fail, but what about the sort of damage you need in order to sue in negligence? You need personal injury, property damage, and that’s actual tangible damage, like someone’s driven into your car or smashed into your wall or something, so personal injury or death, property damage, or exceptionally pure financial loss, see the last problem. So, we’re putting Sniffler to one side, what’s she experiencing?
Participant: Nuisance.
Nuisance, good, absolutely right. So, the only possible tort here is going to be the tort of private nuisance, she’s experiencing unpleasant intangible interference, I don’t know why I’m doing that but it’s the wafting of the smell coming over her land, and so that isn’t actionable damage for the purposes of a negligence action. So, even if they had been at fault, it still wouldn’t have been a runner, so there are the two reasons why negligence fails. Now, nuisance, if you were acting for Porko, what might you want to point to? We’ve already had a really good point, which is she bought the house at a value that has already been discounted to reflect the fact that this house is blighted by pig smells. Yes, what else?
Participant: I have a question.
Yes.
Participant: You mentioned that financial loss is like one of the prerequisites for this, what if you could make the argument that she is suffering financial loss, she now has to spend money to care for Sniffler.
Okay, true, but if you remember my paradigm situation, and indeed the only situation where you can recover for pure financial loss in negligence is really the financial advice type scenario. So, it’s not quite that narrow, as we know from the Lear case, it extends a bit, but in essence it is someone who has assumed responsibility for the claimant’s financial interests, and Porko is just her next-door neighbour. So, it’s a really nice point, she has suffered financial loss, she’s probably going to have to install filters or whatever, and she might have to sell the property at a loss, but it’s not something that’s caught within the duty of care in negligence. So, it has to be nuisance, which is good for her, as we’ll see, it’s almost a stronger claim. If you were acting for Porko you might be thinking, bloody hell, why should she recover? There’s the fact that she’s already got the property at a discount because it’s blighted by the pig smells, what about the fact that Porko’s been running this pig farm for years without any objection, and she’s just turned up and is now making a fuss? Does that make you sceptical? Yes.
Participant: Well, obviously the previous owner had a bad sense of smell, so there wouldn’t have been the chance for there to be a fuss and a claim that’s a nuisance because he wouldn’t have been able to experience it. So, she’s now experiencing it, it doesn’t mean it should hinder her.
Good, do you know what, your intuition is absolutely right, whereas a lot of people find this a difficult concept, it’s called the rule that coming to the nuisance is no defence, and what that means is let’s say you’ve got a situation where someone’s been doing something for years, running a factory that makes noise or vibrations or smells, and no one’s ever complained before. Then in comes this newcomer, this yuppy newcomer who buys a property nearby, and now they’re complaining and saying it’s a nuisance. Some people feel how outrageous, you know, the poor old defendant who’s always been doing this, but you’re absolutely right, the way to look at it is to say the defendant’s just been lucky up till now that no one’s objected, but if judged objectively, and that’s how you have to do it, if judged objectively, what they’re doing amounts to a nuisance then it’s no defence that they’ve got away with it in the past. The only time it would be a defence if... you’ve probably heard of something like squatter’s rights in acquiring real property, it is possible to acquire a prescriptive right if you’ve been doing something for long enough you might have the right to do it, but very unlikely in the case of smell nuisance, intangible nuisance of this kind. So, the fact that she’s moved in recently shouldn’t prevent her suing for nuisance.
Now, nuisance, according to English Law, which English law is very Victorian in its values here, English law says the tort of private nuisance protects land value, it’s not really primarily about life being made unpleasant for human beings, it’s primarily about protecting land value. Now, you might say as I do, well, land only goes up and down in value depending on how pleasant or unpleasant it is for human beings to live there. So, this is a very old-fashioned way of looking at a particular tort, but nonetheless the law is adamant that this is the tort that protects land values, you want to protect human beings, you have to sue in negligence. So, you have to be the landowner or someone with a proprietary interest in the land in order to sue, and the other thing that this shows us is that it’s not subjective, it’s not how bad was this for the particular claimant, it’s judged objectively, did this amount to an unreasonable interference? The law says things like because this is a crowded island we can’t expect too much perfection in the use of our own land, there has to be a give and take with the use of next door’s land, you can’t be too pernickety, but there comes a point where you can start to make a fuss judged by sober modes of living or some strange Victorian phrase.
I don’t know if any of you have seen in the press the case of the Tate Modern Art Gallery that had a viewing platform where thousands and thousands of visitors every day could look across into glass fronted apartments and take photographs of the people there and so on. And the Supreme Court has very recently decided again by a majority that the owners of the flats do have a claim in private nuisance, and it’s applying exactly the same law as we’re talking about here, except this time it wasn’t fumes that was the nuisance, it was being overlooked by people with cameras.
Anyway, what might you want to take into account if you were deciding whether this was an unreasonable interference? Yes?
Participant: Well, Porko could argue that since the previous owner didn’t seem bothered then it might be because Reenie has a very acute sense of smell.
Good, yes, if Reenie has a very acute sense of smell such that your average homeowner wouldn’t even be able to detect this; my daughter has a very acute sense of smell, she’s always telling me that I’ve left the kitchen bin slightly open, blow me, I have, I can’t smell it, she can. So, if Reenie was like her then yes, you might well be right, that this isn’t objectively an unreasonable interference. Other things you might take into account are things like the location, so it’s in a rural area, which might work against her, you know, it’s much more reasonable to have the smell of pig farms in a rural area than it would be in the centre of Cambridge or something. The other thing to think about is just the obvious really, how strong a smell is it? It’s easier with noise, I should have created a problem with noise nuisance, and then you could say how many decibels, I don’t know how you calibrate smell, but just how strong is it? And also, is it all the time? Is it just one day a week? Is it interrupting her sleep or just daytime? All sorts of factors that the court has to throw into the mix to decide whether this is a nuisance.
Okay, let’s assume that they decide that it is a nuisance, the fact that Porko has used state of the art technology is irrelevant because nuisance and negligence are two different torts. So, if you’ve created something that is objectively an unreasonable interference with your neighbour then it’s simply no good to say, oh, but I tried my best not to do so, bad luck, you fail. So, let’s imagine that the court decides this is an intangible interference, what remedy do you think Reenie should obtain from the court? So, just like in criminal law you have, has the crime been committed, and then what should the sentence be? Likewise, in tort you have has the tort been established and then what should the remedy be that the court awards? So, what do you think? Do you think she should be paid money, or do you think the court should somehow order the pig farm to stop producing such terrible smells? Yes?
Participant: I think they should ask Porko to find a solution for the smell or to stop.
Yes, good, I think that’s absolutely right, so the court will go a bit beyond asking and they will order it actually, but you’re absolutely right, a court order called an injunction, and it’s not necessarily all or nothing, it’s not shut down the pig farm, it can be much more nuanced than that, you know, reduce the level of smell, cut down the number of pigs that are stored near to her boundary, it’s quite a clever process. What, on the other hand, if instead of being a pig farm making a smell, what if it was a factory producing a wonder drug that cures cancer? Should that make any difference?
Participant: It will be.
No, so should it make any difference to two things, let’s think, should it make any difference first to whether it’s a nuisance? In other words, something that’s very greatly in the public interest, should it make any difference to whether it’s a nuisance?
Participant: No.
No, good, good. Should it make any difference to what remedy she gets?
Participant: Yes.
Good, exactly, that is exactly what the courts are saying, you take into account the public interest in the particular activity at the stage of deciding whether to award an injunction, and what they might do there is award damages instead of an injunction, sorry, we’re not going to stop this factory because it’s doing something very socially useful, but we will buy you off basically, so enable you to sell at a loss and still be made good. So, that’s how it would work. Let’s bring Sniffler back onto the table for the last couple of moments. We’ve already said some of the reasons why Sniffler is not going to succeed in an action for private nuisance, can you remember why he might fail if he wants to sue for private nuisance? So, do you... I’m not talking to the mums and dads here; do you guys own the home that you live in? No. So, children very rarely have the proprietary interest in the land needed to found an action in private nuisance. So, that’s one reason why Sniffler’s going to fail in private nuisance. The other reason is because nuisance is a tort against land values and proprietary rights, personal injury is not actionable, it’s the wrong way round compared with negligence. In negligence, personal injury is the main, most important type of harm, but it’s not actionable in private nuisance. So, Sniffler will have to do what if he wants damages for his asthma? Yes?
Participant: Ask his mum to say that as a parent she’s had to—
But she hasn’t suffered personal injury, so she can’t claim for his losses, procedurally she might be able to, she’s the adult that brings the claim, but it’s his claim, so what’s he going to have to do?
Participant: Could he file a claim for negligence?
Good, good, he’s going to have to sue in negligence where you definitely can recover for personal injury, but where’s he going to fall down in a claim for negligence? You can definitely establish a duty of care, they live right next door to this factory, it owes them a duty of care, but... yes?
Participant: You’ve got to prove that the smell causes asthma.
So, good, you’ve thought of another one, it’s not the one I was thinking of, so you’ve got duty, what do you have to have with regard to the duty? The existence of the duty is not the end of the story, it’s just the beginning, what has to have happened with regard to that duty?
Participant: Breach of duty.
Breach, exactly. Has Porko breached its duty of care? No, because it’s taken all reasonable steps to presumably keep the fumes to a minimum. Then, I can’t remember who made the really good point, yes, that you’ve got duty, you’ve got breach, then you’ve got to show that the breach caused the harm. Now, he might be able to show that the excessive fumes from the pig farm caused his asthma, but he might very well not be able to. It’s notoriously difficult to prove that something caused a disease of this kind, he might just have been asthmatic, lots of children develop asthma at certain ages, but he’s got to sue in negligence, that’s the reason.
Right, we’ve got time, haven’t we, to do the third problem. Now for something completely different, has that worked? Yes, it has, right, so I’ll quickly read this... yes?
Participant: Sorry, quick question. What will happen if Reenie was renting the property?
That’s a really good question. If she’s got a long lease like you buy a flat but it’s actually a long lease, you probably don’t know about the niceties of conveyancing, but if she’s got a long lease then she’s probably got a sufficient proprietary interest to bring proceedings. If she’s just renting it on a tenancy for six months or a year or something, she’d probably bring proceedings against her landlord saying you had certain covenants to do with quiet enjoyment and freedom from fumes or whatever, so I think she’d be very unlikely to launch a nuisance action if she was just a temporary tenant. The other thing of course to say about that is that in the real-world environmental protection is very, very much centred around the statutory regulation, the Environment Act and this sort of thing, planning permission, conditions as to planning permission and so on. So, the law of tort lurks in the background as a sort of long stop common law remedy if statutory regulation doesn’t help.
Right, now let’s move onto something that is completely different. For the past few years Tiny Co Limited, a very small artisan business that makes crocheted garments has supplied garments to Huge Shop PLC, a large multinational clothing retailer. Huge Shop has resisted giving a long term supply contract to Tiny Co, instead it places individual orders on an ad hoc basis when it needs some more crocheted garments. Tiny Co is commercially dependent on these orders, without them it would probably go bust. Tiny Co has started to become concerned that Huge Shop has not paid its recent invoices and raises this with Huge Shop. Huge Shop’s response is to demand that Tiny Co writes off those invoices, cancels them or else it will not place any more orders. Tiny Co feels that it has no choice but to comply, so it legally waives the existing debts owed by Huge Shop. It has now found a new retailer willing to stock its crocheted garments and wishes to reopen the question of the Huge Shop’s debts that it waived. How should the law respond?
So, here we’re in a very different scenario, the law of contract. The relevant contracts here that we’re interested in is the agreement, and don’t worry about the niceties, but let’s assume it’s a legally binding agreement whereby Tiny Co waived the debts that Huge Shop owed it, so that’s what we’re concerned with. So, the starting point in the law of contract is freedom of contract, freedom to make whatever contracts you want to and the law will enforce them other than some important rules of public policy, like you can’t make contracts to do something illegal. You try and make a contract with an assassin to kill someone, and then they breach it by not killing the person, you know, try going to court and getting that enforced, but subject to things like that freedom of contract prevails.
But it’s got to be freedom, and the law is conscious that sometimes one party can do something in the run up to making a contract that impedes the freedom of the other party to consent properly, we’re back to what Findlay was talking about slightly, and therefore gives a remedy. So, the classic is if I lie to you and you rely on those lies and contract with me as a result, and then later you discover, I’m not even deliberately lying, I just tell you something false that induces you to contract with me. Later you discover it, you can rescind the contract, the court will tear up the contract, set you back to the beginning, put you back to where you were to start with, so that’s something called misrepresentation. There’s been no false statements of fact here, Huge Shop didn’t tell any lies or say anything false, how would you categorise what Huge Shop has done here if you were acting for Tiny Co? Yes?
Participant: Coercion.
Good, coercion, absolutely spot on, and the legal word for that is duress, but it’s exactly the same point, they have coerced Tiny Co. Now, the law does give a remedy where a contract has been entered into as a result of duress, but only in limited circumstances, so if we run through them and see if any of them apply here. These are in order of how long ago the law started to recognise them, so the most basic is duress to the person, i.e. I put a gun to your head and say if you don’t sign this contract or if you don’t pay me this money, I will kill you. So, sure enough, you pay the money, or you sign the contract, you’ve been threatened with violence, that’s the most obvious form of coercion. Of course, any contract you make on that basis can be got rid of, it’s void actually.
Then the law moved on a few centuries later and recognised duress to property, what the hell is that? Well, the best example of that is let’s say I’ve taken my car to the garage to be serviced, and we’ve agreed a price of £200. When I get there the garage owner says, do you know what, I don’t think I’m going to give you back your car unless you agree to double the price to £400. You say, well, I haven’t got any choice, I have to comply because I need the car to pick my kids up from school at the end of the day. You have got a choice actually in theory, you’ve got this choice, you could leave the car there and embark on civil proceedings, civil litigation, and sue for conversion of your goods. And two years later when the court system has ground along you might get a court order demanding that they give you the car back, but that’s of course nonsense, you need the car today. So, you might be tempted to pay the £400, and then later want to claim it back, but do you know what, you can because that’s duress to goods.
Then the law moved on to the 1970s and first recognised something called economic duress, and that is the sort of threat that is a threat to breach of contract put very simply. So, my favourite illustration of this, apologies if you’ve heard it before, but my favourite illustration of this is imagine it’s my daughter’s wedding happening on Saturday. Two years ago, I made a contract with a marquee company, you know, a big circus tent erected in my garden to host the wedding reception. The day before the wedding when the company’s due to turn up to erect the marquee, I get a phone call from the managing director saying, just to let you know, we won’t be coming tomorrow to erect the marquee unless you agree to double the price that we agreed. I’m always doubling it, it makes it easier, but they put the price up. I’m furious with them because they’re threatening to breach the contract, they’re threatening not to perform at the price that we agreed. So, I ring round every other marquee company in the area and they’re all fully booked.
So, actually just like the person whose car was in the garage, I’ve got no reasonable choice other than to bend over. Older people in the room might have heard of the phrase, I’m over a barrel; I’ve discovered over the years that younger people have never heard of that, but anyway, it means you’ve got no choice. It isn’t as rude as it sounds, apparently, it’s sailors having water pumped out of them when they’ve drowned, but anyway. So, a threat to breach of contract where you’ve got no reasonable choice but to go along with it might ground a claim for economic duress.
Is that what we have here?
Participant: It’s what I’m thinking.
Is Huge Co threatening to breach a contract or are they threatening to do something slightly different?
Participant: Threatening not to make a new one.
Good, exactly right, a threat not to make a new contract. Now, that is very, very close to a threat to breach an existing contract, but the law draws a big line down the middle because it’s a negotiating tactic, isn’t it? You’re negotiating with someone, and you don’t like the price they’re offering, you can threaten to walk away, and fine, they might call your bluff and say “bye”, or they might say oh, all right then, I’ll give you a bit more. So, threatening not to contract is really problematic to say that that’s duress. Yes, are you going to say but something?
Participant: I was going to say isn’t them saying they won’t pay the invoice a breach of contract, knowing that they’re going to pay you back?
Good, yes, that’s why this is problematic, I was going to go there right at the end, but you’re right, this is regarded... so, if someone’s not going to pay their bills it’s not quite the same as threatening not to perform a contract in another way. The threat here is not so much we won’t pay the bill, it’s we won’t make any contracts with you in the future, but you are absolutely right that at the heart of this is someone who’s not paying their debts. So, that’s why I’ve actually got a big problem with the recent Supreme Court case that says this is okay, because look at the disparity in bargaining strength between the parties. You’ve got a multinational company exploiting the commercial weakness of the little crochet company. The law worries about saying disparity of bargaining strength is a reason to reopen contracts, and you can kind of see why because very rarely is there a contract where both parties were in perfect equality, there’s always going to be one that’s a little stronger than the other one, so it would give a clever barrister something to argue on every occasion.
I want to leave by thinking back to criminal law, the crime of blackmail is not just a reason to rescind a contract, it’s actually a criminal offence, and the crime of blackmail depends on threats that are virtually always lawful, threat to do something lawful. So, let’s say I know you’ve committed a crime, and I say to unless you pay me £10,000, I’m going to report you to the police. It’s perfectly lawful for me to report you to the police, in fact, it’s my duty as a citizen to report you to the police, but I am committing a criminal offence at that point because I am making a demand for money with a threat of prosecution hanging over you. Or it doesn’t even have to be prosecution, let’s say I say to you, I know you’re having an affair and unless you pay me £10,000, I’m going to tell your partner that you’re having an affair. Blackmail, even though it’s perfectly lawful to tell the truth to somebody’s partner. So, we have an odd situation where we have something that’s a criminal offence that doesn’t necessarily translate into civil actionability, I think it probably does and that this set of facts is nothing like the criminal offence of blackmail, but it’s not right to say that lawful threats, you know, you’re just entitled to do them basically.
So, I’m glad that you’re thinking like that that this isn’t straightforwardly, you know, unless you agree to increase the price that you’re going to pay for my house I’m going to walk away from this transaction, which is called gazumping. People do that at the last minute just when they’re about to exchange contracts, it’s very immoral, but it’s perfectly lawful in this country, it’s a risk because the other party might say well, get stuffed, I don’t want to buy your house after all if you treat me like that. This is the kind of problem that you would look at in the second year, studying the law of contract, the previous two you would have looked at in the first year. So, I hope that’s given you a bit of a taste of life as a law student, thank you ever so much for listening, and all the best with your applications.