Business Law

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Business Law

Category : Articles

Ealing and Hammersmith west London College

ASPECTS OF CONTRACTS AND NEGLIGENCE IN BUSINESS

SUBMITTED BY: PRATIGYA BARAL SUBMITTED TO: MAXWELL-COLE, ALEXANDER

ID NO: 854164 DATE: 07/01/2013

Table of content

1.1 introduction??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦3
1.2 Who can Sue………………………………………………………………………………….3
1.3 Who can be sued……………………………………………………………………………..4
1.4 Consumer Protection Act and Common Law of negligence??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦..4
2.1 Nature of Liability in Negligence??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦5
Should liability be Strict

2.2 What difference does the Consumer protection Act 1987 really make??¦??¦??¦??¦??¦??¦??¦??¦??¦…6

2.3 type of the Damage to which strict Liability applies??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦6
3.1 Vicarious Liability (Adrian V James)??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦7
3.2 Vicarious liability in different Situations??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦8
3.3 Defences of Volenti??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦8
3.4 Employers Indemnify??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦..9
4.1 Bibliography??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦..10
4.2 Table of Cases??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦.11

1.1 Introduction

This task mainly relates with defective products, consumer protection act and who is liable under the act. To analyse the situation first , it is important to know what defective goods are, where does the claim lies and to decide actual situation it is important to know who brought the product and what are type of damages caused by it . Defective product can be defined as the product which is unreasonably dangerous to persons or to their property.

In the case of Frida and Benny, Frida brought a drill for his husband Benny for his birthday. Shopkeeper explains that drill is cheap because manufacturer gone bankrupt. She also buys a radio for his husband. Later, she also buys some cake from her daughter??™s school. Later when Benny finds his presents he tries to switch on the radio but it doesn??™t work. He also try drill and in couple of minutes it gets very hot and explodes injuring him and burning section of wall. After that, they settle down in front of TV with cake, unfortunately when Frida takes a bite of one of them, she cracks a tooth on a stone. Four weeks later, they read a newspaper report which says that the drill manufacturers are recalling the model of drill that Frida bought because of a scientific report stating that the material that the casing is made from is potentially dangerous. The newspaper story says that the manufacturers had no idea of this before the report was published.

1.2 Who can sue
Beginning with the radio, the main thing is that radio is defective but it hasn??™t caused any physical harm so, it is not dangerous. So the claim is only in the contract. Until now, only the person who brought the product could bring an action for breach of contract. This rule is known as the doctrine of privity and meant that there is no contract claim available. For example, if anyone received defective goods as a gift he/she cannot claim against the defective product. In the case of Donoghue v Stevenson [1932], Mrs. Donoghue was not able to claim in contract, as her friend brought drink for her. But the Right of third parties act [1999] has changed this position. This act overrides the consideration rule by declaring that non contracting parties can now sue to enforce terms in contracts expressly indented to benefit them. Therefore, according to this act Benny can claim. (Whincup).

1.3 Who can be sued
In case of Benny, as manufacturer has been bankrupted he can sue retailer who in turn will sue their supplier and so on back up the chain to the manufacturer.

1.4 Consumer protection act and common law of negligence
In case of drill it has caused physical harm as well as harm to property because of which he will be able to claim under both consumer protection act and common law of negligence. If the product or any component of it are defective its manufacturer are liable for the damage under the consumer protection act or the common law of negligence. Liability may also be imposed on any party who holds itself out to be the producer through the use of a name or trade mark, and any person who imported the product into the European Community, which means Benny can sue retailer as well. (Out-law.com, 2011)
The claimant is likely to find it more advantageous to bring an action for a defective good under the act because it does not require any proof of fault. The act creates liability in producers and importers of products that are defective in that their safety is not such as consumers generally are entitled t o expect and which thereby cause injury or damage to other property. The difference between the claim under the consumer protection act and common law of negligence is that in negligence the injure party must be able to prove the injury and damage cause and must prove that manufacturer has failed to take reasonable care which can be expensive and difficult. Also in this case, manufacturer has posted in newspaper saying that they are recalling model because of a scientific report stating that the material that the casing is made from is potentially dangerous. The newspaper story says that the manufacturers had no idea of this before the report was published. Manufacturer didn??™t know before that drill was potentially dangerous so claiming under the common law of negligence may not be very helpful for Benny. (Pinsent masons, 2011)
For Benny claiming under consumer protection act would be more efficient and easy.
In the case of Roe v minister of health[1954] ???the state of the scientific and technical knowledge at the relevant time was not such that a producer of the products of the same description as the product in the question might be expected to have discovered the defect if it had existed in his products while they were under his control???. This defence can apply where for example a drug turns out to have harmful side effects but at the time when it was launched, no-one in the drug industry would have been able to spot the risk. It is the same case as in Benny??™s case where manufacturer didn??™t know the drill was potentially risky so because of which Benny cannot claim him under common law of negligence.
Finally, in case of the Frida buying cake from her daughters school fair. The consumer protection act is designed to impose liability on business rather than individuals, so it does not apply to goods which have not been supplied in course of business, or with a view to making a profit. So, as Frida got it from school fair and also it potentially caused her harm she cannot claim because it was non- commercial supply. (Quinn, 2005)

2.1 Nature of liability in negligence

Should liability be strict
Some believe that the strict liability for defective product is never y good idea. The main argument used is that the threat of strict liability strangles innovation and enterprises; manufacturers, it is argued, will be less likely to launch new products. If manufacturer are afraid of being sued if products turned out defective, through no fault of the manufacturer, or that the producer taking excessive care so that the cost of the products are pushed up so high that they are priced out of market. The study reported in financial times (9 February 1993) said that this was already happening just six years after the introduction of the Act. This may be huge shame in business industry, but it cannot be compared to the risk of people being killed and injured by defective products.
As far as injury to property is concerned, which may be true- since majority of people have insurance for their property, strict liability for damage to such property is nothing more than just adding up insurance. However, it is not considerable with personal injury. Since the risk of the product innovation comes with potential for huge social benefits rather than in dividable producer, should pay when the risk cause harm, in the form of welfare benefits rather than tort damages. (Quinn C. E., 2005)
2.2 What difference does the consumer protection act 1987 really make
The consumer protection act 1987 does not cover all products nor does it cover all defects, nor all kinds of damage. The limitation period under the Act is strict and, in any case, it does not apply to products supplied before 1988. There are many defences permitted under the consumer protection act 1987, and, if any of these are applicable, the consumer or injured party will be thrown upon the mercy of the common law which, in almost every case, is less adequate; there would never have been any need for the legislation to be introduced otherwise.
In 1995, the European commission conducted a review of the implementation of the product liability directive throughout all member states. The commission noted that the directive is generally regarded as very important throughout Europe and that its implementation makes it easier to obtain compensation for damage caused by defective products by eliminating costly argument about liability at an early stage and encouraging and expediting settlement of claims. However, there is evidence in the UK that consumer claims are being brought under the directive and being settled at an early stage, which is exactly what was intended by the directive (Unsafe Products??™, Reports of the national consumer council, November 1995)

2.3 Type of damage to which strict liability applies
The consumer protection act 1987 only creates strict liability in relation to defective and unsafe products. For example, if a car were to catch fire because of wiring defect, there would not be strict liability under the act, though there could of course be an action in contract by purchaser. If the fire injured the driver or passenger there would be strict liability, and if the car caught fire and caused damaged to other property, there would be strict liability under act.
These issues are raised in Carroll v fearon [1998] in which the victims of a car accident caused by defective tyres succeeded in acclaim against Dunlop, the tyre manufacturer, for the injuries which they suffered when tyres blow out.
Liability is strict under the sale of goods act 1979, and there is a remedy for defects in quality as well as for defects which render a product dangerous. However the range of people who could claim was limited by the doctrine of privity of contract until the extension offered by the contracts (Rights of the third parties) Act 1999. Consumers are also provided with additional remedy by the consumer credit act 1974 if they purchase goods on credit. The user of credit can claim against Credit Card Company if he/she is dissatisfied with goods or services bought by credit card. (Harpwood, 2000)

3.1 vicarious liabilities (Adrian V James)
In this case Adrian is an employee for daily deliveries ltd. It??™s not allowed to carry other person other than employee on his van. Since, his employement started his son James 19 has been helping him during his holidays. James has never been employed by company and is aware of restriction in Adrian??™s contract of employment. James got seriously injured, owing to Adrian??™s negligent driving during his lunch break. Now, company has told James there has no liability to pay damages to him.
Employers are said to be vicariously liable for the torts of their employees which are done during the course of employment. Employers will only be liable for their employess or servants. There are two lines of cases, those cases in which acts of employees are held to be within the scope of employment and this which fall outside. Employer will usually be liable for wrongful act which are actually authorised by him. In case of James, he owes duty of care as Adrian has fallen below the standard of care while he was driving the van. It will be not possible for James to sue the company as Adrian was acting on his own behalf. Company has already stated in contract that no other person is allowed in van other than employee. Adrian??™s act was wrongful and unauthorised mode of doing authorised act and rather an independent act which shows that he owes James duty of care. James also won??™t be able to sue company because tort was acted during their lunch break which cannot be considered as a course of employment. The rationale underpinning this doctrine is that employers, rather than employees, should bear the expense of any accidents resulting from doing business. But is it wasn??™t acted during the course of business. So the daily deliveries have no liability towards James as the accident didn??™t happen during the course of business and was Adrian??™s negligence. However, James can sue him under the negligence of duty of care.
In the case of Lister v Romford ice and Cold Storage Co Ltd [1957], a father was injured by his son who was employed by the respondents. The employers were vicariously liable for the son??™s negligence and met their fathers claim. Excursing their right of subrogation under the contract of insurance, the employer sued the son. The House of Lords held that son was liable to indemnify the employer and consequently insurers.
There is a term implied at common law into contract of employment that an employee will exercise all reasonable care and skill during the course of employment. An employee who is negligent is in breach of such term and theoretically, the employer who has been held vicariously liable for tort could seek and indemnity from the employee to make good the loss.
3.2 Vicarious Liability in different Situations
Another similar case is Rose v Plenty [1976], a milk man had been forbidden by his employer to allow young boys to ride on the milk floats and assist in delivering milk. A 13 year old boy was injured partly as a result of the driver negligence and partly through his own carelessness, and employer was vicariously liable. The court of appeal held that the milkman was carrying out, albeit in prohibited manner, the task which he had been employed to do, so the employer was liable. Lord Dennings suggested justification for the decision was that the boy had been furthering the interest of the employer. As the act happened during the course of business employer was vicariously liable for milkman negligence. (Harpwood V. , 2009)
3.3 Defences of Volenti
However, in the case of Twine V Beans Express Ltd [1946], where a hitchhiker was given a lift, it was held that the driver, by giving a lift to an unauthorised person, was acting outside the course of his employment.
So, according to this case by allowing James to be in his van Adrian??™s was already acting outside the course of his employment. One way in which Adrian could have moved out of his course of his employment would be if he had departed from his authorised route and was on frolic of his own. Similar case of frolics has been considered in whatman v Pearson [1868]; Storey V Ashton [1869]. In whatman V Pearson, an employee was not to go home for lunch. He went home with the horse of the company. While being there horse ran free and caused an accident. The employer held responsible for it. Similarly in the case of Storey V Ashton, a driver took a different route to make a frolic of his own. On the way he caused an accident because of his negligence. There was no liability towards company. Though this was just a little detour, the driver was carrying out his own business. (Green, 2005)
Even if the DDL are to be liable to James, they may be covered by the defence of volenti (is a? common law? doctrine which means that if someone willingly places themselves in a position where harm might result, knowing that some degree of harm might result, they will not be able to bring a claim against the other party in tort) since James was already aware that his father was not allowed to take passengers on his van. But also by S2(3) of UCTA 1977, the awareness itself is not to be taken as indicating voluntary acceptance of any risk and , in any case S 149(3) of the Road traffic Act 198 precludes reliance on volenti. The road traffic act renders void any ???antecedent agreement or understanding??? that a passenger is volenti to the risk of negligent driving in any vehicle for which third party insurance cover is compulsory. This provision was considered by court of appeal in Pitts V Hunt [1990] and it was held that this act made the defence of volenti impossible in any action brought by a passenger against the driver of the vehicle on a public road. The key factors in Pitts V hunts was that Pitts knew that hunt did not hold a licence for a motorbike and that he was not insured to use it in a road. The evidence showed that the both young men had consumed a large amount of alcohol, Pitts had encouraged hunt to ride in a way calculated to frighten other road user. (Brennan, 2012)
3.4 Employers Indemnify
The leading case in employer??™s indemnity is Lister V Romford Ice and Cold storage Co Ltd [1957] in which the House of Lords clearly held that the implied duties to indemnify the employer against damage caused by the employee??™s negligence exist. This case has however been criticised many times. The main basis of criticism is that employer has to pay damages because its vicariously liable for it s employee( and given that although liability arises through notional control of the employee by the employer, the principal rationalization of vicarious liability is that the employer ??“or its insurers- has financial ability to pay damages ) creating right of indemnity is inconsistent, in Lister[1957], the employee tried to argue that there was a further implied term in the contract that the employer will ensure that the employee is insured against such liability before the right of indemnity can arise, but this was rejected by house of lords. (Lockton, 2011)
So, according to above discussion DDL can reclaim compensation from Adrian and it still exist but is very unlikely to be used these days.

4.1 Bibliography
* (2005). In D. Green, Torts Law (Sixth Edition ed., pp. 3-4). London, United Kingdom: Cavendish Publishing Limited.
* (2000). product Liability. In V. Harpwood, principle of Tort law (Fourth Edition ed., p. 329). London, United kingdom: Cavending Publishing.
* (2009). Vicarious Liability. In V. Harpwood, Modern Tort Law (Seventh Edition ed., pp. 360-361). NewYork: Cavendish Publishing Limited.
* (2011). Implied duties. In D. Lockton, Employment Law (pp. 72-73). NewYork, United States Of America: Cavendish Publishing Limited.
* Out-law.com. (2011, August). Retrieved January 5, 2012, from pinsent masons: http://www.out-law.com
* Pinsent masons. (2011, August). Retrieved janaury 4, 2012, from Out-law.com: http://www.out-law.com
* (2005). Consumer protection Act 1987. In C. E. Quinn, Tort Law (Fifth Edition ed., p. 192). Harlow, England: Pearson Education Limited.
* Quinn, C. E. (2005). Consumer Protection Act. In Tort law (fifth edition ed., p. 188). Edinburgh gate, England: Pearson Education Limited.
* In M. Whincup, Contract law and Practice (p. 83). a wolterskluwer company.
* (2012). In v. B. Brennan, Tort Law (3rd ed., p. 141). Oxford, United Kingdom: oxford University Press.

Table of cases

1. Donoghue v Stevenson [1932]??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦3
2. Roe v minister of health [1954] ??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦….4
3. Carroll v fearon [1998]??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦..6
4. Lister v Romford ice and Cold Storage Co Ltd [1957]??¦??¦??¦??¦??¦??¦.7
5. Twine V Beans Express Ltd [1946]??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦.8
6. Whatman v Pearson [1868]??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦8
7. Storey V Ashton [1869]??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦..8
8. Pitts V Hunt [1990]??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦??¦9