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(SC)Tort W3M: Negligence:

DUTY of CARE and CAUSATION IN

FACT

General Comments:

Duty of care requirement:

Basic test to approach every court case in trying to determine when a DOC should

be imposed: someone liable for the action towards P whom they have a DOC

Classic two stage test put forward in 70s in HoL by Ann

Step 1: if there was a sufficient relationship of proximity, such that in the

reasonable contemplation of the D, carelessness might be able to cause harm to

P? (prima facie DOC). Sufficient relationship is needed.

Step 2: is that PF duty negated by any other considerations? Wide test that

might impact WON a duty should be.

Over the years, doubt began surfaces about the decision, cases in UK leading to

Caparo, questioning the two stage test, also HILL: where the HoL make it clear that

foreseeability does not enough to trigger the PF duty. There were worries that

replacing the onus on the D to disprove a PF duty as soon as you find foreseeability,

as soon as the P show foreseeability, suddenly the onus shifted to D to say that there

are other considerations which the DOC not to be found in the situation. There are

concerns for it is the reversing the onus on a far too low a threshold.

Caparo p.35 Decision again about negligent statement (what they said rather than what they have

done).

Facts: It‟s about P (Caparo) made a successful takeover decision of the company

and in part they based their decision to take over the company upon a report made

public by the D‟ s auditor (target company auditors). P was the shareholder of the

company. Once they took over the company, instead of taking a profit as the auditors

suggested in the report, the company is making a sizable loss. Caparo loss a lot of

money tried to sue the auditor for negligently preparing the auditor‟s report.

Issue: did D owe any duty to P either as a current shareholder (when they make the

report) or as a prospective takeover bidder in the future?

HoL’s treatment of the Ann’s test: how the UK has treated as bring the Ann‟s test

to a halt.

Overview of precedent: Overview of D v S, Home office and Anns.

Mythodology:

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#1 (Lord Bridge of Harwich) “What emerges is that, in addition to the

foreseeability of damage, necessary ingredients in any situation giving rise to a

duty of care are that there should exist between the party owing the duty and

the party to whom it is owed a relationship characterised by the law as one of

"proximity" or "neighbourhood" and that the situation should be one

in which the court considers it fair, just and reasonable that the

law should impose a duty of a given scope upon the one party for

the benefit of the other.

INTERPRETATION: after Ann‟s, recently we have series of cases that

emphasis the inability of any single general principle (practical test) which

can be applied to every situation. And no one single general test is useful.

Instead, what we need to look at all these cases which include

foreseeability but not limited. Apart from foreseeability, we must also look

to the relationship between D and P whether it is one of „proximity” or

neighborhood, and finally situation should be one in which it is fair, just

and reasonable for the duty to be imposed. v

This is called Caparo three stages: foreseeability is a necessary ingredient

but not sufficient by itself, you also need proximity and neighborbhood

(going back to D v S) between the P and D, and finally if it is fair, just and

reasonable to impose a DOC.

#2“But it is implicit in the passages referred to that the concepts of proximity

and fairness embodied in these additional ingredients are not susceptible of any

such precise definition as would be necessary to give them utility as practical

tests, but amount in effect to little more than convenient labels to attach to the

features of different specific situations which, on a detailed examination of all

the circumstances, the law recognises pragmatically as giving rise to a duty of

care of a given scope. “ INTERPRETATION: After settled the ingredients that we need to look to,

the court then said they are certainly ingredient but not precise definition

test, they certainly of little use “convenient labels” place on different

factor which the court look at in different scenario and what the court

decided pragmatically are in important in this case. They are not very

useful at all, which are merely labels applied to facts in a particular fact

scenario. They can help us, but not useful.

#3"It is preferable in my view, that the law should develop novel categories of

negligence incrementally and by analogy with established categories, rather

than by a massive extension of a prima facie duty of care restrained only by

indefinable 'considerations which ought to negative, or to reduce or limit the

scope of the duty or the class of person to whom it is owed."'

INTERPRETATION: We also see is a recognition by the HoL of the

usefulness of the incremental approach( i.e, building on by analogy and

established case and incrementally advancing the law by looking back

what had been decided before where the duty had been recognized in cases.

Instead of going to embark a massive extension of the law into huge areas.

This is a recognition of the concern that our court had in Marx, where

there was an attempt to extend the duty owed to employer and ALSO to

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his family circle.

Replaced Anns test by three stage test (labels only) and really need to be look at

what had been decided before and develop the law incrementally in the area. And

should not apply a new and massive extension of where we recognized the duty fore.

Problem: The question is does this make MUCH of a difference between Anns and

Caparo? CA and our SC says there is NO difference, just a different ways of labeling

effectively the same factor, no matter what approach the court use, are going to look

at similar factors. Cooke J in South Pacific said does not really matter what

approach you use, you are going to end up the same result.

Development: Turn from UK to NZ where we have reached quite a settled state of

law in terms of what the approach should be and recognition by our court no matter

what the test/apparoach is, each time we approach this, we are MERELY using a

framework that help us to regulate and help our thinking in our organization in

particular fact sitaution in question. What it means is that w must look at facts of the

case, how similar cases been decided, and decide what will the court find, what tell

against/towards the DOC? It is an intensely pragmatic and factually centered

approach.

These cases below give us some guidance of what they would find useful to look at in

determining the DOC:

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South Pacific Manufacturing Co Ltd

Importance: Still get cited today as a useful approach. Decided by Cooke P.

Background: These two proceedings came before the Court of Appeal in different

ways. The first (South Pacific Manufacturing Co Ltd v New Zealand Security

Consultants & Investigations Ltd) was an appeal against a judgment of the High

Court ordering that a cause of action alleging negligence against various of the

respondents be struck out. In the second case (Mortensen v Laing) the Master

refused to strike out similar allegations. An application to the High Court for review

of that decision was removed by consent into the Court of Appeal, being treated as if

it were also an appeal. Both matters were heard together.

Facts:

First matter:

Investigator for the insurance company for the fire, they claim the

shareholders an insecure creditor claimed that they had investigated the

fire negligently. That caused loss because the company had not received

any insurance payout. The shareholder does not get any residual access of

the company and also Unsurecured creditors do not money to pay

insurance money paid out. The insurance reporters were negligently report

the incidence of fire.

Plaintiff: The first case the people suing were merely the third parties.

There were insurance company, which have a contract with the insured

company, and also the third party suing the insurance company, which are

unsecure creditor and shareholder.

Argument for P: Insurance reporter making negligent statement: not that

they had done something negligently.

Second Matter: The Liangs who were actually in a contractual relation with the insurance

company. They were insured.

CA: heard two things together because some of the arguments were the same, Cooke

P laid out some clear guidelines as to how NZ treated DOC issues:

Two board fields of inquiries:

1.) proximity (between the D and P) and

2.) policy considerations

A. Reformulation of Anns‟ test: the significance of difference is that it makes it

explicit that foreseeablity is not enough for proximity: jus because you can

show proximity, which includes proximity, does not mean that there is a prima

facie duty of care; at no stage there are any assumption of that present, we also

need to look at all the factors. Firstly, proximity; secondly, what policy reason

argued for and against the duty: we look at all the material facts in combination

in order to decide whether or not liability should owe:

#1 (Cooke P) “When a duty of care issue arose in a situation not clearly

covered by existing authority, the proper approach was to look at all the

material facts in combination, in order to decide whether as a question of

mixed law and fact, liability should be imposed.”

#2 “A broad two-stage approach or any other approach is only a

framework, a more or less methodical way of tackling a problem. How it is

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formulated should not matter in the end. Ultimately the exercise can only

be a balancing one and the important object is that all relevant factors be

weighed. There is no escape from the truth that, whatever formula be used,

the outcome in a grey area case has to be determined by judicial judgment.

Formulae can help to organise thinking but they cannot provide

answers. ”

B. Foreseeability and proximity : Cooke P things foreseeability does not equate

to proximity (although under Ann‟s test it‟s the same) but also give us some

clues as to what else comes in the proximity test:

#3“I am of the school of thought that has never subscribed to that view,

largely because of Lord Wilberforce's reference to a sufficient relationship

of proximity or neighbourhood. It would be naive, and I believe absurd

and dangerous, to assert that a duty of care prima facie arises whenever

harm is reasonably foreseeable. Even quite unlikely consequences may be

reasonably foreseeable (such as Bolton v Stone). Naturally the degree of

likelihood and the seriousness of the foreseeable consequences can be

important factors in the balancing exercise”

When we look at foreseeability, we look at a couple of thing such as

the likelihood of something happening and the seriousness of the

consequences (the danger posed to the P) .

We seen these two factors when looking at SOC. The similar factors

that can tell against the standard of care, can also tell against DOC.

Trouble of negligence is we divide up the issues, when we put

together, these issues overlap.

C. Incremental approach: Cook P think that it is not that useful (in Caparo,

Marx and Sullivan):

#4 “But it seems to me that the label "incremental" solves few problems.

Thus in Murphy v Brentwood District Council [1991] 1 AC 398, 462, 475,

487, 492, the House of Lords reaffirmed unanimously that a careless

builder is liable in damages to a subsequent purchaser who suffers

personal injury from a latent defect. Lord Bridge of Harwich at p 475

expressed the opinion that the building owner ought to be able to recover

in tort from the negligent builder the cost of obviating a danger, by repair

or demolition, to persons or property on neighbouring land or the highway.

Subject to that qualification or possible qualification, their Lordships held

remedial expenditure irrecoverable. To others, for instance Lord Denning

MR and apparently the other Judges in Dutton v Bognor Regis Urban

District Council [1972] 1 QB 373, 396, at first instance [1971] 2 All ER

1003, this seemed an impossible distinction. In their view the defendant is

liable in either case. That view treats the liability as almost self-evidently

incremental. I am not here intruding an opinion about which view is

correct, but merely making the point that the problem is not answered by

saying that the approach should be incremental.”

Point 1: incremental approach does not make a difference whether we

are incremental or not. Why is that? Because you still have to decide

the duty is incremental or massive change. It just disguises the fact

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that the decision is subjective. UK careless builder (when we look at

defective building is liable for just the danger the building poses, or

also the property value as well). He says incrementalism does not

solve the problem still need to decide whether there is a incremental

change or massive change. Disguised the fact hat we are making an

arbitrary decision. ??

Point 2: DOC owed today must not be owed in five years time.

(philosophical approach). your right depend on when your case is

taken.

#5: “It may be added that in the Supreme Court of Ireland,

where Anns has been applied in holding that a common law duty

of care to avoid economic loss was owed by an administering

local authority to a prospective purchaser-mortgagee, it has

been robustly said that "the verbally attractive proposition of

incremental growth . . . suffers from a temporal defect - that

rights should be determined by the accident of birth":”

Discussion point: it is built on what goes on before. Novel fact

situation (sui generis) situation can not be applied in the

incremantalism.

4. Assessment: when Assessing the duty of care in novel situation; which is to

decide whether it is fair, just and reasonable that DOC be imposed upon the

defendant: this is a intensely pragmatic question you have to see how cases

been dealt with in the past, other competing moral claims, are there other policy

consideration restricted the finding of a duty, policy reason can cut both ways. :

#6: “When a duty of care issue arose in a situation not clearly covered by

existing authority, the proper approach was to look at all the material

facts in combination, in order to decide whether as a question of mixed

law and fact, liability should be imposed. The ultimate question is whether

in the light of all the circumstances of the case it was just and reasonable

that a duty of care of broad scope was incumbent on the defendant. This

was an intensely pragmatic question requiring most careful analysis. It

was helpful to focus on two broad fields of inquiry. The first was the

degree of proximity or relationship between the alleged wrongdoer and the

person who had suffered damage. That involved consideration of the

degree of analogy with cases in which duties were already established and

reflected an assessment of the competing moral claims. The second was

whether there were other policy considerations which tended to negative

or restrict - or strengthen the existence of - a duty in that class of case.”

Factors: Proximity of relationship, policy, and foreseeability

Policy reasons can but both way

Whether NZ follow Ann or Caparo:

Why should NZ continue to follow Ann‟s test? (Cooke P)

There have been no problems with it, therefore we should

continue. That has not caused difficulty or concern either to bar

or community.

He said he could not recognize between the two approaches.

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All counsels recognize in the case that the same considerations would be under

Caparo or Anns‟s test, there is no consideration in the incremental approach in

Caparo‟s approach which would not be taken into account in the NZ in these

broad areas. Because we are trying to reach the same answer that whether DOC

should be found in particular defendant)

Is it fair, just and reasonable: look at the proximity between the party and any

policy reasons point for will point away finding of a duty, which is a re-

formulated Ann‟s test. (this is the new Zealand approach to duty of care

question)

Some factors relating to SOC can also be used to justify the finding of duty or

no duty. (36:52)

FROM JUDGMENT:

Richardson J

…proximity reflects a balancing of the plaintiff's moral claim to compensation for

avoidable harm and the defendant's moral claim to be protected from an undue

burden of legal responsibility.

There are four features of the case under this head which together satisfy me that

the relationship between the parties was sufficiently proximate to raise a prima

facie duty of care. The first is the direct and close nexus between the defendant's

negligence as alleged and the plaintiffs' loss….

The second is that the defendant is not in a position to say that the imposition of a

duty of care would expose him to a burden out of proportion to his moral

culpability. It is not suggested that there is any significant conflict between his

obligations to the insurer under the contractual duty of care and any obligations to

the plaintiffs under the common law duty of care. It is not suggested that the cost

of being careful, of carrying out the investigation and making his report with due

care, would have been unfairly onerous.

The third is that the statute under which the defendant's company was in due

course licensed to carry our such investigations reflects a public interest in the

competency of investigators. The statute is the Private Investigators and Security

Guards Act 1974. In terms of the long title and as it applies to private

investigators its object is to:

". . . provide for the licensing of private investigators as a means of affording greater protection to the

individual's right to privacy against possible invasion by private investigators . . . and to regulate the conduct of business by private investigators . . .".

An investigator such as the defendant, who in the course of his business is seeking

information for the insurer relating to the actions and behaviour of an insured, is a

private investigator within the meaning of s 3 and is required to hold a licence

under the Act. While there is particular emphasis on the personal character and

fitness of a licensed investigator and the statute provides its own sanctions under

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the disciplinary and offence provisions, one specific ground of complaint to the

Registrar is that the licensee has been guilty of negligence in the course of the

business to which the licence relates (s 53(4)(d)), and civil remedies that any

person may have against a licensee are not affected by the Act (s 73). The

important point is that the relationship between investigator and the subject of the

investigation is recognised as sufficiently proximate in its likely effects on those

investigated to call for legislative oversight.

Finally, viewed simply in terms of proximity there is a clear parallel with two

categories of cases where a duty of care has been recognised. One is the duty

owed by a solicitor to a designated beneficiary under a will where the solicitor has

accepted instructions to prepare the will for execution but has failed to do so before the testatrix dies (Gartside v Sheffield, Young & Ellis [1983] NZLR 37). The

other is the duty owed by a receiver appointed by a debenture holder to the holder

of a subordinate security, the value of which is adversely affected by the conduct of the receiver (First City Corporation Ltd v Downsview Nominees Ltd [1990] 3 NZLR

265). In those two cases, as here, the defendant assumes a responsibility to act

carefully in undertaking an activity; in each there is a similar dependence and

power relation between the plaintiff and the defendant; in each there is a high

degree of likelihood that careless performance of that responsibility will cause

harm to the plaintiff.

Wider policy concerns:

While the proximity of the relationship may be said to raise a prima facie duty of

care there are in my view overwhelming policy reasons for denying such a duty in

this case.

First, there are various public policy considerations arising from any superimposing

of a direct duty of care in tort owed by the investigator to the insured on top of the

immediate contractual relationship between insured and insurer on the one hand

and insurer and investigator on the other. Under the insurance contract each party

has duties of good faith and fair dealing to the other. The common law also

imposes on a person who contracts to carry out an operation an obligation to

exercise reasonable care and skill (Smith v Eric S Bush [1990] 1 AC 831, 844),

although that implied obligation may be excluded in the particular contract. The

insurance policy in this case is not in evidence. It would be surprising, however, if

the insured did not have a remedy against the insurer for failure to take

reasonable care in investigating and determining the insured's claim under the

policy.

These were commercial premises and commercial insurance contracts are

frequently negotiated through brokers. The amount of the premium is the price

paid for the particular cover agreed. If the insured have a remedy in contract

against the insurer they should exercise that remedy. If they do not have an

adequate remedy that is because they only paid a premium which gave them that

lesser protection. In that situation I cannot see any justification for allowing them

a greater recovery through tort than they were prepared to pay for in contract.

The second contract is between insurer and investigator. There, too, the parties

have their expressly or impliedly agreed remedies for any negligence in the

performance of the contract (Gold Star Insurance Co Ltd v Dominion Adjusters Ltd [1982] 2 NZLR 38); and in the absence of an exclusion of liability the duty of care

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applies both to the work of the investigator which results in the report and to the

report itself.

It is in relation to remedies that the present case differs markedly from Gartside

and Downsview. Here contractual remedies are an appropriate sanction against

want of care in the performance of the activity. No claim under the contract was

available in those cases in respect of that kind of negligent performance for the

simple reason that the other party (the testatrix and her estate in Gartside and the

first debenture holder in Downsview) suffered no loss.

Those were the respective bargains the present parties made. Tort theory should

remain consistent with contract policies. In public policy terms I consider that

where, as here, contracts cover the two relationships, those contracts should

ordinarily control the allocation of risk unless special reasons are established to

warrant a direct suit in tort. That accords, too, with Simaan General Contracting

Co v Pilkington Glass Ltd (No 2) [1988] QB 758 where for policy reasons the

English Court of Appeal concluded that any claims by A (Simaan) against B (Feal)

and by B against C (Pilkington) could and should be pursued down the contractual

chain and that there was no warrant for extending the law of negligence to impose

direct liability in tort on C in favour of A.

No special factors such as those discussed in Smith v Bush have been advanced in

this case. In particular, it was not suggested that through oligopolistic trade

practices or other market failure the parties to such commercial insurance

arrangements could not be expected to arrive at commercially acceptable bargains

and that state intervention through the imposition of legal obligations in tort was

required in the public interest to redress that kind of imbalance. That was not

contended for.

Here the plaintiffs seek relief in tort for what are essentially contract based losses

in circumstances where there are no discernible public interest considerations

warranting departure from the allocation of risks as agreed contractually. And it is

not as if the case involves a choice between letting the loss remain with the

injured party and transferring it to another through a tort action. Where those are

the stark alternatives it may be reasonable to focus particularly on the respective

moral claims of one as against the other. But a plaintiff who has had the

opportunity under her or his primary contract to obtain full contractual protection

against that kind of loss cannot expect society to provide further protection

through tort law.

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Roll-Royce NZ: Facts: there was no contract between the D and P. Despite no contractual

relationship, RR was named as the sub-contractor. It turns out that D build the plant

negligently. It sued G in contracted but couldn‟t sue RR because there is no

relationship. So they sued GG in tort for negligence.

[1] The predecessor to Genesis Power Ltd (Genesis) contracted to procure the

building of a cogeneration plant at Carter Holt Harvey Ltd's (Carter Holt's)

Kinleith mill. Carter Holt claims that the plant is defective. It sues Genesis

primarily in contract and Genesis' subcontractor, Rolls-Royce New Zealand Ltd

(Rolls-Royce), in negligence. Note: There were two contracts- one for the construction of the generation plant (the

cogeneration contract) between CH and ECHZ (now Meridian) and the “turnkey”

contract between ECNZ and RR to provide the necessary equipment. [6] There were limitations on the liability of the ECNZ…. contained in particular

in cls 10.3 and 10.4. In summary, cl 10.3 provided that (with certain exceptions,

none of which are presently relevant) neither KCL nor the ECNZ was to be liable

for any indirect or consequential loss. Clause 10.4 provided that KCL and the

ECNZ are liable for direct losses only and set a maximum liability for any loss of

or damage to any property of $10m for any single occurrence. [7] On 4 July 1995, the ECNZ entered into a second agreement with Rolls-

Royce, the contractor selected to design, construct and commission the plant

(the turnkey contract). The works under that contract comprised two sections;

the boiler and the turbine generator…. [10] There was no direct contractual relationship between Carter Holt and Rolls-

Royce. The cogeneration contract had, however, been entered into on the basis

that Rolls-Royce would be the subcontractor and there had been design work

and even some construction work undertaken by Rolls-Royce on the project

before the turnkey contract was signed. This was on the basis of a letter of

intent signed by the ECNZ and Rolls-Royce which had been provided to Carter

Holt Issue: do you think DOC recognized between CH and RR?

If yes, reason is that because it is reasonable in D v S for that to be owed: a

contractual relationship is necessary to find a duty of care. As a manufacturer,

they have DOC to end consumer. BUT this is bad argument (distinguishes from

D v S), because :

Although, P is an end consumer. The damage caused is arguably

economical (not just physical sickness). The type of damage is one that CL

generally gives less weigh to. Economic loss as opposed to physical injury.

The CL treats personal injury that we are going to protect much more

strongly than economic loss. The judge says: “when you have an

economic loss someone benefits, but no net loss to society, as opposed to

physical injury” but that is a very weak reason to protect physical integrity

in negligence. Someone physical integrity is much more imp. Than

economic loss.

Also, the P had the option to contract directly, they chose not to. Two

massive cooperation which the court would say should protect their own

interest in contract but chose not to.

Duty is not found because of contractual matrix. The major fact was P could have

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protected themselves via contract. They use negligence to do something which they

refuse to pay for via contrual. They have also remedies via Genesis.

Glazerook: [53]”a framework rather than a strait-jacket..the effect of the duty of care

would have, other legal duty, as well as society, what impact will have on other legal

duty and other society”. Will it to give P, caused D to be overly defensive in the

future, will finding a duty help to impose good standard in the part. Industry, will

finding a duty make good loss P had suffered (should be able to recover for), place

great a burden. Questions that will come in the policy debate.

FROM JUDGMENT:

Nature of the claim:

[55] As a result, it is alleged that the plant suffered from the defects, most of

which are related to its not meeting the technical specifications in the contract.

The other defects identified are alleged general defects in the plant itself, but

there is no allegation that any of them is dangerous. All arose during the defects

liability period and there is no allegation of latent defects. There is also no

allegation of any physical damage to the property of Carter Holt, other than

physical damage to components of the plant itself, allegedly caused by defects in

other parts of that plant. There are no allegations of possible future damage to

other property that might be caused by defects in the plant.

[56] The allegation, therefore, is essentially that, through Rolls-Royce's

negligence, the plant does not perform as Rolls-Royce in the turnkey contract

promised that it would. The losses alleged are those occasioned by the

rectification of the defects and loss allegedly arising from the defects while they

remain unrectified.

Test to be applied: [58] Should there be a duty of care in a case such as this? The ultimate

question when deciding whether a duty of care should be recognised in New

Zealand is whether, in the light of all the circumstances of the case, it is just and

reasonable that such a duty be imposed. The focus is on two broad fields of

inquiry but these provide only a framework rather than a straitjacket. The first

area of inquiry is as to the degree of proximity or relationship between the

parties. The second is whether there are other wider policy considerations that

tend to negative or restrict or strengthen the existence of a duty in the

particular class of case. At this second stage, the Court's inquiry is concerned

with the effect of the recognition of a duty on other legal duties and, more

generally, on society.

[59] The inquiry into proximity is concerned with the nature of the relationship

between the parties and is more than a simple question of foreseeability. It

involves consideration of the degree of analogy with cases in which duties are

already established. This is because Courts should only move gradually into new

areas of liability and also because the examination of factors that have

influenced earlier decisions ensures that any development of the law occurs in a

principled and cohesive manner.

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[60] The proximity inquiry can be seen as reflecting a balancing of the plaintiff's

moral claim to compensation for avoidable harm and the defendant's moral

claim to be protected from undue restrictions on its freedom of action and from

an undue burden of legal responsibility. That necessarily involves a consideration

of how close the nexus is between the defendant's alleged negligence and the

plaintiff's loss and the degree of harm to the plaintiff. It also involves considering

the burden on the defendant of taking precautions against the risk and also

whether the consequences to the defendant may be out of proportion to its fault.

[61] The extent to which those in the plaintiff's position are vulnerable can also

be taken into account. The inquiry may in this case concentrate on whether a

defendant with special skills has power over a vulnerable plaintiff…

[62] Whether there are or could realistically have been other remedies for a

plaintiff is relevant to the assessment of vulnerability. If there are, then this may

point to there having been adequate means for the plaintiff to protect itself and

to there being adequate deterrence for the defendant …Professor Todd considers

that the focus should be on what steps a person could reasonably have taken to

look after his or her interests and, in commercial cases, includes the

consideration of bargaining power and market reality.

[63] The nature of the loss can also be taken into account. The Courts have

been less willing to impose a duty of care in cases of economic loss than where

there is physical damage to property or, in jurisdictions other than New Zealand

with its accident compensation regime, physical injury….this is because claims

for economic loss may result in mere transfers of wealth, so that one person's

loss is another's gain, whereas harm to a person or property involves a net loss

to social wealth.

[64] The statutory and contractual background may also be relevant in defining

the relationship between the parties and can point, depending on the

circumstances, both towards and away from a finding of proximity. The statutory

and contractual background can raise wider policy issues and thus the boundary

between proximity and policy can merge. The two-stage approach is, however,

only a framework and no presumptions, rebuttable or otherwise, arise at any

stage of the inquiry. This means that the important object is that all relevant

factors are properly weighed, not the stage of the inquiry at which they are

taken into account…

[65] For example, in Price Waterhouse v Kwan, at p 41, para [6] Tipping J

considered the relevant legislative environment to be of considerable relevance

to the issues of both proximity and policy and, in South Pacific Manufacturing, all

of the Judges considered that the existence of contractual remedies against the

insurer militated against there being a duty of care. Casey J, at p 314, treated

this factor as being a factor pointing against there being the requisite degree of

proximity. Hardie Boys J, at pp 318 – 319, said that the existence of alternative

remedies was a factor that could point against proximity being present but in

fact dealt with the contractual remedy against the insurer as a policy

consideration weighing against the imposition of a duty, as did all the other

Judges. Cooke P, however (at p 301), also referred to the contractual structure

in his discussion of proximity, approving of the reasoning in Simaan.

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Issues with current form of claim:

[66] Before proceeding further, we note that the claim could not succeed in its

present form. To recap, the main duty alleged in this case is a duty to take

reasonable care to ensure that the plant was constructed in accordance with

contractual specifications contained in a contract to which Carter Holt was not a

party. There is no duty in tort to take reasonable care to perform a contract. At

most, there is a duty to take reasonable care in or while performing the contract,

which is quite a different concept. Carter Holt's pleadings mainly assert the

former. A duty formulated in such terms is essentially contractual in nature and

therefore cannot be owed to one who is not a party to the contract.

[67] Even where the duty alleged is couched in the statement of claim in more

general terms, the loss is linked for the most part to losses arising from the

failure to meet the contractual specifications. This raises the related issue of the

relevant standard of care. The difficulty in setting a standard of quality, if tort

liability is imposed, has long been a reason put forward for not imposing a duty

of care in this type of case – see for example Lord Brandon's dissent in Junior

Books Ltd v Veitchi Co Ltd at pp 551 – 552.

[68] The problem is not so acute in the case of buildings or products destined

for private individuals, although there may remain issues with ensuring that any

standard imposed is no greater than any standard set in a relevant contract. As

a majority of the High Court of Australia pointed out in Woolcock Street

Investments Pty Ltd v CDG Pty Ltd at para 28, at the least, the contract defines

the task that was undertaken and there would be difficulty in holding that a

defendant owed a duty of care if performance of that duty would have required

the defendant to do more or different work than the contract with the original

owner required or permitted. Even where there is concurrent liability in contract

and tort, the Courts are careful to ensure that tort liability does not extend

beyond the contractual liability with regard to matters covered by the contract –

see Henderson v Merrett Syndicates Ltd, at p 194 and Frost and Sutcliff v Tuiara [2004] 1 NZLR 782, at p 789 where Tipping J said for this Court that, in

conventional circumstances, the two causes of action will usually be concurrent

and co-extensive. It should be no different where the contractual relationship is

indirect.

[69] The problem of setting quality standards, which do not relate specifically to

contractual standards, is acute when dealing with commercial construction

contracts for specialist plant with detailed specifications, as is the case here.

This in itself must be a factor weighing against a duty being recognised.

Discussion of case law:

[70] Assuming that the claim can be repleaded to the extent necessary to deal

with the issues set out above, we embark on an examination of the proximity

question and begin with a discussion of the case law. In summary, in New

Zealand there is no case where a duty of care has been found to exist in

analogous circumstances,

P a g e | 14

[71] Liability to subsequent owners of domestic dwellings for defects in such

dwellings has, however, long been a feature of New Zealand case law, since

Bowen v Paramount Builders (Hamilton)

[72] Doubt has, however, been expressed in New Zealand as to whether liability

extends to commercial construction cases, see Invercargill City Council v Hamlin, at p 520 (CA) (Cooke P) and Riddell v Porteous [1999] 1 NZLR 1 (CA), at p 12. In R

M Turton v Kerslake, p 418 the majority (Henry and Keith JJ) said that, in a

comprehensive contractual situation such as existed in that case, the Court

should hesitate to go beyond that relationship to impose a tortious duty outside

that framework but affecting the rights and liabilities of the parties within that

contractual setting.

[74] The distinction between commercial and domestic buildings was not,

however, favoured because of the difficulties of definition. …the test

now…concentrates on what are called salient features. (note: the court reviewed

the law of CA and Australia which in some circumstances allowed damages for

repairs to dangerous buildings and the lack of a general approach in the United

States)

[80] It is worth saying a little more about the position in England. As indicated

above, liability to subsequent purchasers of buildings was denied by a special

seven-Judge panel of the House of Lords in Murphy. There are two cases in

England, however, that are directly in point: Junior Books Ltd v Veitchi Co Ltd

and Simaan General Contracting Co v Pilkington Glass Ltd (No 2).

81] In Junior Books, a subcontractor was held by a majority of the House of

Lords (Lord Brandon dissenting) to owe a duty of care in tort to the owner with

regard to defects in the flooring it had installed in a factory. In Simaan, the

plaintiffs were the main contractors for a building in Abu Dhabi. The contract

specified that units of green glass manufactured by Pilkington were to be

incorporated into the curtain walling. The plaintiffs subcontracted the supply

and erection of the curtain walling to subcontractors who purchased the glass

from Pilkington. There was thus no contractual relationship between the

plaintiffs and Pilkington. It was alleged that the glass supplied was defective

owing to discrepancies in its colouring. The colour discrepancy was

unacceptable to Sheikh Al-Oteiba, the building owner. The Court of Appeal held

that there was no tort liability.

[82] The majority decision in Junior Books has been the subject of much

criticism – see that referred to by Stephen Todd The Law of Torts in New

Zealand (3rd ed, 2001) at p 296. It has also been distinguished on many

occasions. Indeed, in The Orjula [1995] 2 Lloyd's Rep 395, at p 401, Mance J

described Junior Books as a case that appeared to have “joined the slumber of

the uniquely distinguished from which it would be unwise to awaken it without

very solid reason”.

[83] Later House of Lords decisions, including Murphy, have, however,

stopped short of overruling it but all have acknowledged difficulties with the

decision. Its ambit has been suggested as being restricted to a situation where

a subcontractor can be seen as having a special relationship with the owner

through an assumption of responsibility in the Hedley Byrne sense: see D & F

Estates Ltd v Church Commissioners for England [1989] 1 AC 177 (HL), at pp

201 – 202; Henderson v Merrett Syndicates Ltd, at p 196 and Murphy v

P a g e | 15

Brentwood District Council, at p 466 (Lord Keith), and at p 481 (Lord Bridge)

(HL).

[84] Simaan is a case that has, on the other hand, been widely approved both

in New Zealand and the United Kingdom: see, for example, South Pacific

Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd,

at p 301 (Cooke P), and at p 308 (Richardson J); R M Turton v Kerslake, at p

411; Henderson v Merrett Syndicates Ltd, at p 196.

[85] The fact that Simaan was approved by Lord Goff in Henderson v Merrett

is particularly significant. That case held that managing agents owed a duty of

care to Lloyd's underwriting members (Names), both where there was a direct

contractual relationship between them and where the relationship was indirect.

In the latter case, Lord Goff emphasised that the imposition of such a duty

would be unusual. Lord Goff expressly approved Simaan and said that the

tripartite contractual structure in construction cases would normally preclude

there being an assumption of responsibility for quality matters directly to the

owner or to others in the contractual chain.

[86] It is, however, not entirely clear from Lord Goff's speech exactly what the

difference was between the situation of the indirect Names and that of the

subcontractor in Simaan. It may be that Lord Goff considered that the

construction industry had special characteristics, given that a contractual

structure allocating tasks and risks at each step (often in industry standard

[2005] 1 NZLR 324 page 347

form) is a necessary feature of the industry and that it would be inappropriate,

absent exceptional circumstances, to engraft upon what was covered by that

normal contractual structure a duty of care in tort.

[87] He may also have been considering the special structure of the Lloyd's

insurance industry and issues of parity between the direct and indirect Names,

as well as the particular vulnerability of the indirect Names and the necessary

reliance on the agents where, unlike in the construction industry, there was no

other obvious means of protection in the circumstances of the case. Indeed,

Professor Jane Stapleton in “Duty of Care: Peripheral Parties and Alternative

Opportunities for Deterrence” [1995] 111 LQR 301, at pp 338 – 339 considers

that this is the only coherent and principled basis of distinguishing between the

two situations.

[88] It is also difficult to see how the situation in Junior Books differed from

that in Simaan. Junior Books proceeded on the basis that the flooring

subcontractors were nominated skilled subcontractors and this is said to have

created the special relationship between them and the factory owner. The

subcontractor in Simaan was also a nominated subcontractor and presumably

also skilled in its field. Admittedly it was nominated by the Sheikh not the

plaintiff, but the judgments in Simaan make it clear that the same result would

have been reached had the Sheikh been the plaintiff.

[89] A possible difference between the two cases is that Junior Books

concerned a defective floor, which had structural significance, whereas in

Simaan the question was of variable colour of the glass and therefore arguably

was rather of aesthetics. It may be too (although this is not clear from the

judgments) that the only way it could be argued that the glass was defective

was that it did not meet the contractual specification, whereas the flooring

P a g e | 16

could have been seen as defective per se, without need to have recourse to the

contractual standard. It is difficult to see, however, that these possible

differences could have any bearing on whether or not there was a special

relationship between the plaintiff and the subcontractor.

Assumption of responsibility:

[97] It is worth at this point saying something more about the concept of

assumption of responsibility. Where negligent misstatement is at issue, although

the test for liability is the same as that discussed above, the proximity inquiry

generally focuses on the interdependent concepts of assumption of responsibility

by a person with a special skill and foreseeable and reasonable reliance by the

plaintiff: see Attorney-General v Carter, at p 168 para [22].

[98] The assumption of responsibility and reliance concepts have also been

used where the allegation is that services were negligently performed. This is

understandable as negligent misstatements and services may tend to merge.

For example, a negligent audit report is produced through the negligent

performance of audit services – see for example Price Waterhouse v Kwan, at p

43. Insofar as the disappointed beneficiary cases are concerned, the test has

been used, without the requirement of reliance: Gartside v Sheffield, Young & Ellis [1983] NZLR 37, at p 47. As discussed above at para [83], the assumption of

responsibility concept has also been suggested as an explanation for the finding

of liability in Junior Books.

[99] Assumption of responsibility for a statement or a task does not usually

entail a voluntary assumption of legal responsibility to a plaintiff, except in cases

where the defendant is found to have undertaken to exercise reasonable care in

circumstances which are analogous to, but short of, contract, and it is

foreseeable that the plaintiff will rely on that undertaking. If that is the case

then, subject to any countervailing policy factors, a duty of care will arise. In

other cases, the law will deem the defendant to have assumed responsibility

where it is fair, just and reasonable to do so: Attorney-General v Carter, at pp

168 – 169 (paras [23] – [27]). Whether it is fair, just and reasonable to deem

an assumption of responsibility and then a duty of care will depend on a

combination of factors, including the assumption of responsibility for the task,

any vulnerability of the plaintiff, any special skill of the defendant, the need for

deterrence and promotion of professional standards, lack of alternative means of

protection and so on – that is, essentially the matters discussed above at paras [58] – [65]. Wider policy factors will also need to be taken into account.

[100] Finally, we note that assumption of responsibility for the task cannot be

sufficient in itself, at least insofar as the negligent construction cases are

concerned. If it were, then the result in Simaan (which has been so widely

approved) could not be justified, as the subcontractor in that case had clearly

assumed responsibility for the task of supplying glass that accorded with the

contractual specifications. The question in Simaan was whether the

subcontractor had assumed responsibility to the plaintiffs and the answer given

in the case, although not expressed in that manner, was that it had not. Any

assumption of responsibility was only to the direct contracting party.

P a g e | 17

Factors pointing towards proximity:

[101] We now return to our discussion of proximity. The strongest factor

pointing towards a finding of proximity in this case is that of foreseeability. It

was clearly foreseeable that a lack of reasonable care on Rolls-Royce's part

would cause loss to Carter Holt and the type of damage caused would appear

also to have been foreseeable. There is, through the contractual structure, a

direct and close relationship between Rolls-Royce's alleged negligence and

Carter Holt's loss and there are, to paraphrase the famous comment of Cardozo CJ quoted above at para [60], no concerns about there being indeterminate

liability to an indeterminate number of plaintiffs.

[102] Another factor favouring liability is the very high degree of direct contact between Carter Holt and Rolls-Royce (discussed above at para [38]) before the

entry into the turnkey contract. As we indicated above at para [40], we do not

consider that contact after the entry into the contract is relevant, at least on the

current pleadings. Rolls-Royce's special skill in the design and construction of

cogeneration plants and the highly specialised nature of these skills is also a

factor of relevance, although Carter Holt alleges that Rolls-Royce misrepresented

its skills in that regard. We note in any event that the relevance of any special

skill of Rolls-Royce is diminished to some extent by the role of the liaison

engineer and the control Carter Holt was contractually able to exercise over the tender, design and construction process as described in paras [13] – [15] above.

As Blanchard J pointed out in Riddell v Porteous, at p 12, a distinction between

domestic and commercial cases may be able to be drawn because in the latter

case an architect or engineer will usually be employed

Factors point against proximity:

[103] The strongest factor pointing away from a proximity finding is the very

contractual structure that made loss to Carter Holt foreseeable and provided a

close nexus between Rolls-Royce's alleged negligence and Carter Holt's loss.

There is an unusual contractual structure in this case in that the ECNZ was

never intended to be directly involved in the design and construction phase. In

that sense, Rolls-Royce was not a subcontractor but the only contractor. This is

reflected in the obligations of the ECNZ being expressed in terms of using best

endeavours to ensure the specifications were met.

[104] There is no pleading that this contractual structure was forced upon

Carter Holt by Rolls-Royce and there seems no obvious reason why Rolls-Royce

would care whether it owed its contractual design and construction obligations to

the ECNZ or directly to Carter Holt. On the other hand, it is possible to conceive

of commercial reasons which may have led Carter Holt to prefer the contractual

structure as entered into. Given the other roles the ECNZ and KCL were to play

in the cogeneration process and their expertise in that area, it may have seemed

sensible commercially for them to be contractually tied in with the design and

construction phase and to ensure that the main burden of enforcement rested

with them rather than with Carter Holt. Indeed, we were told from the Bar that a

direct contract with Rolls-Royce had been considered but rejected by Carter Holt.

Whatever the position was, the parties were all sophisticated commercial parties

and there is no suggestion that there was other than equality of bargaining

power between them. Nor is there any suggestion of inequalities of bargaining

P a g e | 18

power generally in the marketplace between commercial parties to such

construction contracts.

[105] Mr Fardell, for Carter Holt, tried to make something of the fact that work

started on both design and, to a limited extent, construction before the turnkey

contract was entered into. We do not consider that this has any significance. It

was the choice of the parties that this be the case and Carter Holt still retained

the right to approve the turnkey contract.

[106] Although the cogeneration contract was limited in the obligations it

placed on the ECNZ and KCL, it did recognise the future existence of the turnkey

contract and contained important provisions to protect Carter Holt's position,

such as the provision for the benefit of warranties to inure to Carter Holt (cl

10.2.2) and the ability in some circumstances to take a direct role in the turnkey

contract (for example cls 17.2.1.2 and 17.2.3.2). This could be seen as pointing

to an intention on the part of the parties that these possible contractual rights

should be the only direct rights Carter Holt would have against Rolls-Royce, at

least unless and until there was a direct contractual relationship between them.

We note that this was the reasoning employed by the English Court of Appeal in

Norwich City Council v Harvey [1989] 1 WLR 828. We note also that McHugh J in

Woolcock Street Investments Pty Ltd v CDG Ltd at para [84] points out that

leading writers on construction law in Australia suggest a prudent principal

should enter into a collateral contract with subcontractors that contains

appropriate warranties and that Australian professional institutions have

endorsed particular contractual warranties in this regard. Similar comments

were made by John Greenwood and Tim Jones in the New Zealand Law Society

seminar paper, Building Contracts: The Essential Issues (1995) at pp 109 – 110.

[107] Entering into the amendment agreement with Genesis, once defects in

the plant became apparent, could also point against there being any expectation

of direct liability of Rolls-Royce. The amendment agreement contained further

protection for Carter Holt, for example by providing that the ECNZ would use its

best endeavours to ensure that Rolls-Royce performed its contractual obligations

under the turnkey contract to remedy defects arising within the defects liability

period (cl 4.26) or, in other circumstances, to meet the cost of work undertaken

by Carter Holt or to recover from Rolls-Royce Carter Holt's costs incurred in

remedying defects or damage (cl 4.27). We note, too, that all defects arose

during the defects liability period and so there is clearly a contractual remedy,

albeit in most circumstances an indirect one.

[108] Other aspects of the contracts also point against a duty of care being

imposed. It is not a case where the main contract and the subcontract mirror each other – see paras [4] – [16] above. We note in particular that the dispute

resolution mechanisms are different in the two contracts, with an arbitration

clause in the turnkey contract. The provisions relating to insurance in the two

contracts are also different.

[109] Also of relevance is the fact that there are limitation clauses in both the

cogeneration and the turnkey contracts. While the exact scope of the limitation

clause in the cogeneration contract is still to be determined, Carter Holt has only

paid for what is to be provided under that contract. It should not be able to

P a g e | 19

improve on its bargain by direct suit: South Pacific Manufacturing Co Ltd v New

Zealand Security Consultants & Investigations Ltd, at p 308 per Richardson J.

[110] There are also limitation clauses in the turnkey contract. These are set out in paras [31] and [32] above. GCC 42.1 is directed only at the ECNZ. SCC 20

is more general and we would be inclined to accept Mr Brown's submission

(made in the cross-appeal) that there would be little point in having the two

clauses if they were both directed at the ECNZ, although for these purposes it

would not matter if they were. The presence of a limitation clause in the contract

between a head contractor and subcontractor signifies clearly, if known to the

owner, the subcontractor's unwillingness to do the job otherwise than subject to

the limitation. The owner's acquiescence can then be deemed an acceptance of

the terms under which alone the subcontractor is prepared to enter into a

relationship defining its duty to the owner – see John Fleming “Tort in a

Contractual Matrix” (1995) 33 Osgoode Hall LJ 661, at p 665. As Jane Stapleton

says in “Duty of Care and Economic Loss: A Wider Agenda” (1991) 107 LQR 249,

at p 286, a plaintiff should not be allowed to circumvent either a contractual

bargain between the plaintiff and defendant or even a non-contractual but clear

understanding between parties as to where the risk would lie.

[111] Both clauses were brought to the attention of Carter Holt through Carter

Holt's review of the turnkey contract. Carter Holt is a commercial party. It was

legally represented and must be taken to have understood the import of the

clauses. SSC 20, as pointed out by Mr Brown, was on a separate page in the

special conditions and hardly concealed from view. It would also have been no

surprise to Carter Holt to find such clauses in the contract. Construction

contracts typically contain limitation or exclusion clauses, as evidenced by the

standard clause in the FIDIC Contract, upon which GCC 42.1 was based. Carter

Holt and its legal advisers must have been aware of this. As Professor Smillie

says in “The Foundation of the Duty of Care in Negligence”, at p 329, a

disclaimer might be able to be overridden, even with clear notice, where the

plaintiff is a private consumer who had no choice but to avail himself or herself

of the particular service on the terms offered, but it may at the same time be

appropriate to enforce a standard form of exclusion or limitation provision

against a commercial party, even in the absence of actual notice, if the plaintiff

could be expected to know that the product or service in question is normally

supplied subject to such conditions.

[112] We recognise that neither of the clauses exclude liability in tort. Indeed,

as pointed out by Mr Fardell, they in fact contemplate such liability by

specifically mentioning tort liability as a possibility. The important point,

however, is not that the clauses contemplate tort liability but that they attempt

to limit liability and that this allocation of risk was with the knowledge of Carter

Holt. The only thing that would have pointed to the limitation clauses not being

taken into account would have been if Rolls-Royce had represented that they did

not apply to Carter Holt. There is, however, no allegation of this kind in the

pleadings.

[114] Finally, we note that Carter Holt certainly cannot expect to have the

standard of care set by reference to the contract while at the same time denying,

as it wishes to do, that the limitation clauses apply

P a g e | 20

Policy considerations:

[117] There are a number of policy considerations pointing away from a duty of

care being imposed in this case. Some have already been discussed above,

including the difficulty, in cases where there are detailed contractual

specifications for specialised plant, of setting quality standards that do not relate

specifically to those contractual specifications.

[118] The main policy factor militating against a duty of care is the need for

commercial certainty. Commercial parties are normally entitled to expect that

the risk allocation they have negotiated (and paid for) will not be disturbed by

the Courts. It is also to be expected that commercial parties are capable of

looking after their own interests, including, especially in an industry where

insolvency is a major risk, the risk of insolvency of an intermediate party. On the

other hand, it is not necessarily the case that private individuals are in a position

to be able to protect themselves and this can justify a difference in treatment.

Is it fair, just and reasonable to impose a duty?

[121] The main factor pointing towards a duty in this case is foreseeability.

That largely derives from the contractual structure. The details of that very

same contractual structure, however, in our view, point strongly against a

finding of proximity. As indicated above, Carter Holt had the choice of

contracting directly with Rolls-Royce. It did not choose to do so, even though

the ECNZ's obligations in the main contract were limited to an obligation to use

its best endeavours to ensure the plant met the contractual specifications.

[122] The contracts were entered into by Carter Holt, in the form they were, in

the knowledge that the successful completion of the project was dependent on

Rolls-Royce. Carter Holt nevertheless made no attempt to have any greater

direct liability than that negotiated through the contractual structure. Indeed,

Carter Holt can be seen as having confirmed by the amendment agreement that

it was looking to Genesis to ensure the identified defects were rectified. To be

considered also are the differences between the main contract and the

subcontract and the limitation clauses in each. We reiterate that there is no

suggestion of inequality of bargaining power or market failure in this case.

[123] Policy factors also point strongly against there being a duty of care in this

case. These are sophisticated commercial parties capable of looking after their

own interests. The Courts have no need to interfere in bargains they have freely

arrived at.

[124] The only factor that we have not taken into account in this balancing

exercise is the extensive dialogue between Carter Holt and Rolls-Royce, both

before and after the contracts were entered into. The question would be whether

this factor alone could outweigh all of the others. We would not have thought so

but it is not appropriate for us to decide this as we did not hear argument

specifically directed to it. The answer may depend on whether Junior Books, as it

has been explained in later United Kingdom cases, is part of New Zealand law

and, if so, whether the dialogue between the parties caused the test to be

satisfied.

[127] For the reasons given earlier, we consider that the claim must be struck

out to the extent that it is pleaded as a duty to take reasonable care to perform

P a g e | 21

the contract. Even where it is not pleaded in this manner, the claim must be

struck out, except to the extent that the duty pleaded rests on the alleged

negligent statements made by Rolls-Royce to Carter Holt, both before and after

the entry into the contracts. In case we have not already made this clear, Junior

Books in its wider manifestation is not, for cases of this nature, part of New

Zealand law.

(note: both parties accepted, and the court appeared to endorse, that a

“Hedley Bryne claim” could not be struck out. The claim was not

discussed in judgment.)

Wednesday: Couch

Case Law

South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282 (CA) . 37

Facts: These two proceedings came before the Court of Appeal in different ways. The first (South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd) was an appeal against a judgment of the High Court ordering that a cause of action alleging negligence against various of the respondents be struck out. In the second case (Mortensen v Laing) the Master refused to strike out similar allegations. An application to the High Court for review of that decision was removed by consent into the Court of Appeal, being treated as if it were also an appeal. Both matters were heard together. In the first matter, South Pacific and Pogoni (claiming respectively to be an unsecured creditor and principal shareholder of Elite Apparel Ltd) issued proceedings claiming damages against New Zealand Security Consultants & Investigations Ltd (Security Consultants) and Morley and Thoreau, who were respectively a director and an employee of that company. They alleged breaches of a duty of care owed to them by those parties in investigating and reporting to Elite's insurer about the origins and causes of a fire which destroyed that company's property; and that as a result of the wrong advice it received from them, the insurer refused to indemnify Elite. That company subsequently sued the insurer under the policy. Its claim was settled by receivers appointed by a secured creditor. In the present proceeding, South Pacific also advanced claims against the receivers in respect of that settlement. Further, Pogoni claimed damages

P a g e | 22

for defamation arising out of the publication of the investigators' reports. In the second matter, Mr and Mrs Laing claimed under a fire policy for losses arising from a fire at their business premises. They alleged that the insurer refused to pay because of Mortensen's breach of duty of care to them in carrying out his engagement to inquire and report to it on the causes of the fire. They alleged that as a result of his advice, Mrs Laing was convicted of arson, which conviction was later set aside on appeal. They claimed from Mortensen the value of the stock destroyed in the fire and loss of profits and the legal expenses incurred in defending the criminal prosecution, and general damages to $250,000. Both applications were dealt with on the assumption that the plaintiffs could make good the facts alleged in their statements of claim. The basic issue in each was whether a duty of care was owed to them by an investigator engaged by the insurer to investigate and report to it on claims under the policies.

Issue: Is D negligent ?

Held: 1 It was well established that the discretion to strike out is one to be sparingly exercised, and would be justified only, if on the material before the Court and in the present state of evolution of the common law, the case as pleaded was so clearly untenable that the plaintiff could not possibly succeed. If the Court was left in doubt whether a claim might lie, or if disputed questions of fact arose, the case must go to trial. If the claim depended on a question of law capable of decision on the material before the Court, the Court could determine the question even though extensive argument might be necessary to resolve it. Both cases were appropriate subjects for a striking-out application which could, if successful, eliminate a lengthy trial of the clearly untenable causes of action (see p 305 line 6, p 311 line 36).

2 When a duty of care issue arose in a situation not clearly covered by existing authority, the proper approach was to look at all the material facts in combination, in order to decide whether as a question of mixed law and fact, liability should be imposed. The ultimate question is whether in the light of all the circumstances of the case it was just and reasonable that a duty of care of broad scope was incumbent on the defendant. This was an intensely pragmatic question requiring most careful analysis. It was helpful to focus on two broad fields of inquiry. The first was the degree of proximity or relationship between the alleged wrongdoer and the person who had suffered damage. That involved consideration of the degree of analogy with cases in which duties were already established and reflected an assessment of the competing moral claims. The second was whether there were other policy considerations which tended to negative or restrict - or strengthen the existence of - a duty in that class of case 3 In the South Pacific matter, the claimed duty of care was not present. Even if the investigators owed a duty of care to the insured, such a duty would not

P a g e | 23

extend to persons financially interested in the insured 4 (per Cooke P, Richardson and Hardie Boys JJ, and Sir Gordon Bisson, Casey J dissenting) In the Mortensen matter there was undoubtedly a close proximity between the investigator and the insured; however (per totam curiam) there were weighty policy considerations telling against a duty of care. These included the fact that there already existed a remedy available to the insured in contract to recover under the policy. Further, to allow the duty of care asserted would cut across established principles of law in fields other than negligence

Implication: .

Rolls-Royce New Zealand Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA) 39

Facts: Carter Holt Harvey Ltd (Carter Holt) contracted with the Electricity Corporation of New Zealand Ltd (the ECNZ), the predecessor of Genesis Power Ltd (Genesis), to procure (acquire) the design, manufacture, construction, purchase and installation of a cogeneration plant at Carter Holt's Kinleith mill (the cogeneration contract). Shortly afterwards the ECNZ contracted with Rolls-Royce New Zealand Ltd for Rolls-Royce to design, construct and commission the plant (the turnkey contract). The cogeneration contract was entered into on the basis that Rolls-Royce would be the subcontractor, but there was no direct contractual relationship between Carter Holt and Rolls-Royce. Carter Holt complained that the plant was defective and did not conform with the contractual specifications for construction and installation. It issued proceedings against Genesis alleging breach of the cogeneration contract, and against Rolls-Royce in negligence, alleging that Rolls-Royce had breached a duty to perform its contractual obligations with Genesis. Rolls-Royce applied to strike out the claim on the basis that such a duty is not recognised in tort in New Zealand. The Master declined the strike-out application, as did a Judge on review. Rolls-Royce appealed to the Court of Appeal.

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Issue: Is D negligent ?

Held: 1 The question when deciding whether a duty of care should be recognised in New Zealand was whether, in the light of all the circumstances of the case, it was just and reasonable that such a duty be imposed. There were two broad fields of inquiry. The first was as to the degree of proximity or relationship between the parties. The second was whether there were other wider policy considerations that tended to negate, restrict or strengthen the existence of a duty in the particular class of case. The proximity inquiry was concerned with the nature of the relationship between the parties. It was more than a simple question of foreseeability and involved consideration of: (i) the degree of analogy with cases in which duties were already established; (ii) balancing the plaintiff’s moral claim to compensation for avoidable harm and the defendant’s moral claim to be protected from undue restriction on its freedom of action and from an undue burden of legal responsibility; (iii) the extent to which the plaintiff’s position was vulnerable having regard to whether the defendant’s special skills created power over a vulnerable plaintiff; (iv) whether there were or realistically had been other remedies for the plaintiff; (v) the nature of the loss. The Courts were less willing to impose a duty of care in cases of economic loss than where there was physical damage to property; and (vi) the statutory and contractual background in defining the relationship between the parties which could point, depending on the circumstances, both towards and away from a finding of proximity (see paras [58], [59], [60], [61], [62], [64]). 2 There was no duty in tort to take reasonable care to perform a contract. Such a duty was essentially contractual in nature and could not be owed to one who was not a party to the contract (see para [66]). 3 Even if the claim in negligence were amended to plead a duty to take reasonable care in or while performing a contract, policy considerations would militate against the imposition of a duty of care. There was a need for commercial certainty. The Court should not interfere in risk allocations negotiated and paid for by the parties, particularly in commercial contracts. This was a commercial construction case and the parties had chosen to clearly define their obligations by detailed contracts. There was no duty of care owed by Rolls-Royce to Carter Holt except to the extent that the duty pleaded rested on alleged negligent statements made by Rolls-Royce to Carter Holt both before and after entry into the contract. The dispute-resolution mechanisms were different in the two contracts, with an arbitration clause in the turnkey contract. There were limitation clauses in both contracts. Carter Holt had only paid for what was to be provided under its contract and should not be able to improve on its bargain by suit. These were sophisticated commercial parties capable of looking after their own interests and the Courts had no need to interfere in bargains they had freely arrived at. 4 Notwithstanding the principle that consideration of whether a novel duty

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of care existed should normally wait until trial, where the claim depended on a question of law capable of decision on the material before the Court, then the Court should determine the question 5 There was no jurisdiction to hear the cross-appeal. The finding that Rolls-Royce was not liable to Carter Holt for any indirect or consequential losses was a preliminary finding only and there was no final ruling (see para [138]). 6 It was not appropriate to deal with categories of damages in the abstract without evidence. The strike-out application by Genesis would be declined (see para [154]).Rolls-Royce appeal allowed; cross-appeal by Carter Holt dismissed; strike-out application by Genesis declined.

Implication: .

Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 . 41

Facts: Bell had been convicted of aggravated robbery of a petrol station and sentenced to imprisonment. He was released on parole and, owing to the workload in the South Auckland probation office, was allocated to a relatively junior probation officer. The probation officer allowed Bell to take up employment at the Panmure Returned Services Association (the RSA), where there were large quantities of cash and alcohol available. The RSA management was not told the details of his criminal record. Bell left employment at the RSA but early one morning arrived there with accomplices and entered the premises and in the course of stealing property murdered three members of staff who happened to be there and severely injured another, Ms Couch. She and the estates of the murder victims began proceedings against the Attorney-General on behalf of the Department of Corrections alleging negligence and claiming exemplary damages. The Attorney-General applied for the actions to be struck out on the ground that there was no duty of care to the plaintiffs and was successful in the High Court and Court of Appeal. Ms Couch alone appealed to the Supreme Court.

Issue: Is D negligent ? (whether the defendant is under a duty of care to the plaintiff ?)

Held: 1 It was arguable that the Department owed a duty of care to the plaintiff. The claim was not therefore to be struck out on the basis that no

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duty of care could possibly be owed. Whether there was sufficient proximity between the plaintiff and the Department depended: (per Blanchard, Tipping and McGrath JJ) `\The necessary risk had to be distinct, in the sense of being clearly apparent, and special in the sense that the plaintiff’s individual circumstances or membership of a necessary class rendered her particularly vulnerable to suffering harm of the relevant kind from Bell; (per Elias CJ and Anderson J) on a broad inquiry without controlling emphasis on the plaintiff’s membership of a sufficiently delineated class (see paras [4], [66], [112], [113]). 2 (per Blanchard, Tipping and McGrath JJ) If proximity could be established the plaintiff had to show that policy issues did not militate against a duty of care. The policy arguments against recognising a duty of care had force, but the case for such a duty could not be found, at this stage, to be unarguably precluded as a matter of policy (see paras [126], [129], [130]). 3 (per Blanchard, Tipping and McGrath JJ) The physical proximity of Bell to fellow employees, the nature of the business including the presence of cash and alcohol and the nature of the offence for which Bell was on parole did not give rise to the required special risk, whether individually or in aggregate. There were, however, factors which, if pleaded, would give rise to an arguable case for proximity (see paras [122], [124], [125]). 4 The appeal would be adjourned to enable the Court to hear argument on the questions raised by the parties relating to exemplary damages (see para [1]).

Implication: .

The exam question.