BUSINESS LAW
Macaura v Northern Assurance Co Ltd [1925] AC 619 appeared before the House Of Lords concerning the principle of lifting the corporate veil. Unusually, the request to do so was in this case made by the corporation's owner.
FACTS
Mr Macaura owned the Killymoon estate in County Tyrone, Northern Ireland. He sold the timber there to Irish Canadian Sawmills Ltd for 42,000 fully paid up £1 shares, making him the whole owner (with nominees). Mr Macaura was also an unsecured creditor for £19,000. He got insurance policies - but in his own name, not the company's - with Northern Assurance covering for fire. Two weeks later, there was a fire. Northern Assurance refused to pay up because the timber was owned by the company, and that because the company was a separate legal entity, it did not need to pay Mr Macaura any money.
JUDGEMENT
The House of Lords held insurers were not liable on the contract, since the timber that perished in the fire did not belong to Mr Macaura, who held the insurance policy. Lord Sumner said,
“ | It was not his. It belonged to the Irish Canadian Sawmills Ltd, of Skibbereen, co Cork… He stood in no ‘legal or equitable relation to’ the timber at all… His relation was to the company, not to its goods, and after the fire he was directly prejudiced by the paucity of the company’s assets, not by the fire… | ” |
Lord Buckmaster, Wrenbury, Atkinson and Phillimore concurred.
Ridge v Baldwin [1964] AC 40:
Following acquittal in a trial on corruption charges in which the judge criticised him, a Chief of Police (Ridge) was sacked without a hearing. After reconsideration by the Police Authority and an unsuccessful appeal to the Home Secretary, Ridge brought an action for a declaration that the dismissal was unlawful. The House of Lords granted the declaration. In cases of dismissal on grounds of neglect of duty, a hearing was required. Neither the reconsideration nor the appeal to the Home Secretary cured the original defect in the decision, as both failed to give Ridge an opportunity to contest the material on which the decision was based. In any event, the original decision was a nullity, so that it could not be rendered valid by the appeal to the Home Secretary, nor did this appeal exclude recourse to the courts. Lord Reid dismissed the Police Authority’s claim that because it was implementing a policy, the principles of natural justice did not apply.
LAW OF TORT
Donoghue v Stevenson [1932] AC 562
This was a decision of the House of Lords that established the modern form of the tort of negligence in English and Welsh law, and delict in Scots law, by setting out general principles whereby one person would owe another person a duty of care. The case originated in Paisley, Renfrewshire under Scots law, but the House of Lords determined that the English law of negligence and the Scots law of delict were identical. Donoghue v Stevenson is often referred to as the "Paisley snail" or the "snail in the bottle" case, and is one of the most famous decisions in British legal history.
On the evening of Sunday 26 August 1928 May Donoghue, née M’Alister, boarded a tram in Glasgow for the thirty-minute journey to Paisley. At around ten minutes to nine, she and a friend took their seats in the Wellmeadow Café in the town's Wellmeadow Place. They were approached by the café owner, Francis Minchella, and Donoghue's friend ordered and paid for a pear and ice and an ice-cream drink. The owner brought the order and poured part of an opaque bottle of ginger beer into a tumbler containing ice cream. Donoghue drank some of the contents and her friend lifted the bottle to pour the remainder of the ginger beer into the tumbler. It was claimed that the remains of a snail in a state of decomposition dropped out of the bottle into the tumbler. Donoghue later complained of stomach pain and her doctor diagnosed her as having gastroenteritis and being in a state of severe shock.
On 9 April 1929, Donoghue brought an action against David Stevenson, an aerated water manufacturer in Paisley, in which she claimed £500 as damages for injuries sustained by her through drinking ginger beer which had been manufactured by him. The case was settled in court, and the manufacturer was held liable for damages as he owed a duty of care to the ultimate consumer- from that judgment onwards the particular caselaw has been founded and has been exercised through precedent. The identity of Donoghue's friend is unknown, but that person is referred to as "she" in the case reports (including the first paragraph of the judgement of Lord MacMillan in the House of Lords). Other factual uncertainties include whether the animal (if it existed) was a snail or a slug, whether the bottle contained ginger beer or some other beverage (as 'ginger' in Glaswegian and West of Scotland parlance refers to any fizzy drink) and whether the drink was part of an ice-cream soda.
Legal background
In common law, a person can claim damages from another person where that other person owed the first person a duty of care and harmed that person through their conduct in breach of that duty. This concept existed prior to Donoghue, but it was generally held that a duty of care was only owed in very specific circumstances, such as where a contract existed between two parties or where a manufacturer was making inherently dangerous products or was acting fraudulently.
There was no contractual relationship between Donoghue and the drinks manufacturer or even, as Donoghue had not ordered or paid for the drink herself, between Donoghue and the café owner. Although there was a contractual relationship between the café owner and Donoghue's friend, the friend had not been harmed by the ginger beer. As ginger beer was not a dangerous product, and the manufacturer had not fraudulently misrepresented it, the case also fell outside the scope of the established cases on product liability. On the face of it, the law therefore did not provide a remedy for Donoghue.
Donoghue's solicitor, Walter Leechman of W G Leechman & Co in Glasgow's West George Street, had already tried to establish liability against aerated water manufacturer A. G. Barr when a dead mouse was alleged to have found its way into a bottle of its ginger beer. However, an action for damages was rejected by the Inner House of the Court of Session, when the appeal court judges ruled that there was no legal authority allowing such an action.
Progress of the case
The writ lodged in the Court of Session on April 1929 alleged that May Donoghue had become ill with nervous shock and gastroenteritis after drinking part of the contents of an opaque bottle of ginger beer, and David Stevenson, the manufacturer, "owed her a duty to take reasonable care that ginger beer he manufactured, bottled, labelled and sealed, and invited her to buy, did not contain substances likely to cause her injury." Donoghue claimed damages of £500.
Counsel for the manufacturer denied that any such duty was owed, but in June 1930 the judge, Lord Moncrieff, ruled there was a case to answer. Stevenson appealed the ruling on a number of legal grounds, and the judges of the Inner House granted the appeal in November 1930, dismissing Donoghue's claim as having no legal basis following the authority of their earlier decision in Mullen v AG Barr. One of the judges said that "the only difference between Donoghue's case and the mouse cases was the difference between a rodent and a gastropod and in Scots law that meant no difference at all."
Donoghue was allowed to appeal her case to the House of Lords but, whilst her legal team had agreed to provide their services free, she was unable to put up the security needed to ensure the other side's costs were met should she lose in the Lords. However, as such security would not be required if she could gain the status of a pauper, she petitioned the House of Lords, saying, "I am very poor and am not worth in all the world the sum of five pounds, my wearing apparel and the subject matter of the said appeal...". A certificate of poverty signed by a minister and two elders of her church was attached to the petition, and the House of Lords agreed to grant her pauper status.
Nine months after her petition was granted, Lords Buckmaster, Atkin, Tomlin, Thankerton and MacMillan heard counsels' arguments. Donoghue's counsel - George Morton KC and W. R. Milligan (later a Lord Advocate) - argued that a manufacturer who puts a product intended for human consumption onto the market in a form that precludes examination before its use is liable for any damage caused if he fails to exercise reasonable care to ensure it is fit for human consumption. Stevenson's counsel - W. G. Normand KC (then Solicitor General for Scotland and later a Law Lord), J.L. Clyde (later Lord Advocate and then Lord President of the Court of Session), and T. Elder Jones - argued that there was no authority for such a principle of law.
Judgment
The leading judgment was delivered on 26 May 1932 by Lord Atkin. The most famous section was his explanation of the "neighbour" principle, which was derived from the Christian principle of "loving your neighbour" (see James 2:8 and cf. the Parable of the Good Samaritan):
There must be, and is, some general conception of relations giving rise to a duty of care, of which the particular cases found in the books are but instances. ...The rule that you are to love your neighbour becomes in law you must not injure your neighbour; and the lawyer's question: Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law, is my neighbour? The answer seems to be - persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions that are called in question . . . a manufacturer of products, which he sells in such a form as to show that he intends them to reach the ultimate consumer in the form in which they left him with no reasonable possibility of intermediate examination, and with knowledge that the absence of reasonable care in the preparation or putting up of products will result in an injury to the consumer's life or property, owes a duty to the consumer to take that reasonable care.
"A man has a Duty of Care to conduct himself in such a way as to avoid harm to others, where a reasonable man would have seen that such harm could occur".
Lords Thankerton and MacMillan supported Lord Atkin's opinion, with Lords Buckmaster and Tomlin dissenting. Buckmaster said it was impossible to accept such a wide proposition and (anticipating later "floodgates" arguments) that it was difficult to see how trade could be carried on if Lord Atkin's principle was law. Buckmaster also opined, as did Lord Tomlin, that if such a duty of care existed it must cover the construction of every article, not just food: "If one step, why not fifty?" Tomlin referred to the Versailles train crash in 1842 caused by a defective axle, noting that, if Lord Atkin's principle were to be law, every injured party would be permitted to sue the axle manufacturer in such a case.
The case was returned to Scotland for the Court of Session to apply the ruling to the facts of the case. In the event, David Stevenson died within a year of the decision and his executors settled out of court, for less than the original claim of £500.
Significance
As Justice Allen Linden has pointed out, Donoghue is an extension of a principle articulated by Benjamin Cardozo in an earlier case in the United States, MacPherson v. Buick Motor Co., which the judges referred to in Donoghue. MacPherson pioneered the tortious principle of a general duty of care, the starting point for any action in negligence, though the principles were expressed within the context of product liability only.
Donoghue is perhaps best known for the speech of Lord Atkin and his "neighbour" or "neighbourhood" principle, where he applied Luke 10 to law so that, where an established duty of care does not already exist, a person will owe a duty of care not to injure those whom it can be reasonably foreseen would be affected by their acts or omissions. The effect of this case was not only to provide individuals in the United Kingdom with a remedy against suppliers of consumer products even where the complainant had no privity of contract with those individual or company tortfeasors, but to allow such individuals to bring negligence claims in any circumstance where the conditions for establishing a duty of care were met.
In 1990, the House of Lords revised Lord Atkin's "neighbour" principle to encompass public policy concerns articulated in Caparo Industries Plc. v Dickman ([1990] 1 All ER 568). The three-stage Caparo test for establishing a duty of care requires (i) foreseeability of damage, (ii) a relationship characterised by the law as one of proximity or neighbourhood and (iii) that the situation should be one in which the court considers it would be fair, just and reasonable that the law should impose a duty of given scope on one party for the benefit of the other. In other jurisdictions, such as New Zealand, there is now a two-part test for novel fact situations, where the establishment of a duty must be balanced against applicable policy matters.
Because of the significance of the case, in 1996 former Supreme Court of British Columbia Justice Martin Taylor, Vancouver lawyer David Hay and filmmaker Michael Doherty produced an educational documentary of the case. Besides recreating the events leading up to the case and "interviews" with actors playing the significant participants in the case, the production includes a 1995 interview with Lord Denning—then aged 96.[3] This was one of the last interviews with Lord Denning, who died three years later. The film has been exhibited worldwide.[4]
CONTRACT LAW
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ
FACTS
The Carbolic Smoke Ball Company made a product called the "smoke ball". It claimed to be a cure for influenza and a number of other diseases. The smoke ball was a rubber ball with a tube attached. It was filled with carbolic acid (phenol). The tube was then inserted into the user's nose. It was squeezed at the bottom to release the vapours into the nose of the user. This would cause the nose to run, and hopefully flush out the viral infection.
The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13, 1891, claiming that it would pay £100 to anyone who got sick with influenza after using its product according to the instructions set out in the advertisement.
“£100[1] reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic influenza colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks, according to the printed directions supplied with each ball.
£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.
During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease, and in no ascertained case was the disease contracted by those using the carbolic smoke ball.
One carbolic smoke ball will last a family several months, making it the cheapest remedy in the world at the price, 10s. post free. The ball can be refilled at a cost of 5s. Address: “Carbolic Smoke Ball Company, “27, Princes Street, Hanover Square, London.”
Mrs Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used three times daily for nearly two months until she contracted the flu on January 17, 1892. She claimed £100 from the Carbolic Smoke Ball Company. They ignored two letters from her husband, who had trained as a solicitor. On a third request for her reward, they replied with an anonymous letter that if it is used properly the company had complete confidence in the smoke ball's efficacy, but "to protect themselves against all fraudulent claims" they would need her to come to their office to use the ball each day and be checked by the secretary. Mrs Carlill brought a claim to court. The barristers representing her argued that the advertisement and her reliance on it was a contract between her and the company, and so they ought to pay. The company argued it was not a serious contract.
JUDGMENT