Template:Concurrent liability

Warning: written from a finance lawyer’s perspective. Construction lawyers: take with an even greater pillar of salt than usual.

Brethren attorneys will occasionally caution you that the four corners of a contract might not be the extent of your liability: You might get sued in tort.

Extraordinary though it seems, technically it is true. Lord Scarman’s sensible observations in Tai Hing Cotton Mills v Liu Chong Hing Bank, that there isn’t “anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship” has been long since overruled - 1995’s Henderson v Merrett being a prominent example. There, Lord Goff noted that the law of tort is the general law, the law of contract in a way a specific instance of it. So, first, establish the duty in tort, and then see if the duties in a contract modify or replace it:

“Yet the law of tort is the general law, out of which the parties can, if they wish, contract: [...]. Approached as a matter of principle, therefore, it is right to attribute to that assumption of responsibility, together with its concomitant reliance, a tortious liability, and then to enquire whether or not that liability is excluded by the contract because the latter is inconsistent with it.”

In the case of financial contracts, generally it will. In other, unusual cases, it might not. But these are typically “builders’ liability” cases where a Defendant built a house for Person A, who sold it to Person B, upon whom, at some significant remove, it collapsed. Uniquely here, there is a gap between contractual bat and pad:

• Person A had a contract, for six years from the date of construction, and therefore a cause of action for breach against the Defendant but, sold the house at full value and has suffered no loss.
• Person B has suffered a loss all right, but has no contract with (and therefore no cause of action for breach of one against) the Defendant, and cannot sue Person A who was innocent of any knowledge of the defect when it sold the house.

The Defendant might say, well, my liability arises here under a contract, so therefore no action sounds in tort. Yet instinctive human fairness demands that Person B be compensated, and that the Defendant should be the one to pay, but the strict contractual lines seem to get in the way. (it isn’t clear that they do, by the way: because I have a contract with A, carrying it out carelessly cannot affect my civil obligations to B or C or D, if they are people whose interests I ought to hold in contemplation as I do).

A concurrent duty in tort owed by the builder to that narrow and determinate group of “neighbours” — and they might literally be neighbours, if the house is terraced — or those who end up owning the house in the six years after it builds it — is a neat way of plugging the gap. But that group should not include the contracting counterparty itself, so really this isn’t true “concurrent liability” at all.

When the cause of action accrues

In any weather, these are unusual cases. In the normal run of things — at least when your rights and liabilities extent to instantly observable things like paying money and delivering securities — there’s little to be said for concurrent liability. When one is exchanging cash and financial assets, one can generally observe a breach of contract, and the loss it precipitates, instantly.

But in the grubbier world of building and manufacturing, the formal differences concerning when ones cause of action arises make a difference: a cause of action arises on breach, regardless of whether the breach is apparent or the loss has materialised; where liability depends proof of damage, as it does in negligence, the period starts when plaintiff suffers loss. Thus, builders liability cases are the difficult children; cases about swaps and loans tend not to be.

The fact pattern in these builders cases is little different from that in Donoghue v Stevenson - the paradigm negligence case par excellence — where the buyer of the ginger-beer was not the one consuming it. In a straightforward bilateral contract with no aggrieved Person B, it would be absurd for tortious duties that arise at general law to widen or constrict the allocation of risk set out in the contract. You can contract out of tortious duties (even if that isn’t obvious in principle to you, Lord Goff said so in Henderson v Merrett). Unless your contract is uncommonly vague, by just having one you will have done so. You can always explicitly exclude tortious liability in the contract if you are really worried about it (though it does look a little “for the avoidance of doubt” to this pair of eyes. It’s not hard to do:

“This is a contract. Neither party will be liable to the other in tort under it.”