Professional Negligence II
Cases
Roche v. Peilow
[1985] IR 232 Supreme Court
Walsh J.
The plaintiffs, who are husband and wife, engaged the defendants in 1973 to act as solicitors for them in the purchase of a house in Cork. They have alleged that the defendants were negligent and in breach of contract in the carrying out of their work as such solicitors for the plaintiffs. In the result they instituted proceedings against them in the High Court for damages. The action was heard by the then President of the High Court, Mr. Justice Finlay, who in a reserved judgment delivered on the 21st December, 1979, dismissed their action. This appeal is brought against that judgment. The facts are fully dealt with in the judgment of the learned President. For the purpose of this judgment it is sufficient to set them out briefly.
The house purchase was to be effected by means of a building contract with the developer of building sites, a company named J.B. Construction Company Limited. The building contract, which was dated the 19th February, 1973, was coupled with an agreement for a lease dated the 19th February, 1973, between the construction company and the first named plaintiff. The lease was to be for a term of 999 years from the 25th March, 1972, and was to be granted in consideration of the expense incurred by the said Joseph William Roche in the erection of the house in question and in consideration of the rents and covenants to be reserved in the lease. The lease referred to the site of the house which was part of the lands comprised in Folio 58474 of the Register of Freeholders of the County of Cork of which the construction company was the registered owner and was known as Site No. 19, Muskerry Drive, Woodlands, Blarney, Co. Cork.
The arrangement for the building of the house and the grant of the lease was part of a building development of a much larger area which was owned by the said J.B. Construction Company Limited. The contract provided that the landlord would on or before the execution of the lease furnish the plaintiffs with a certified copy of the said folio. The lands on which this development was taking place were subject to the provisions prohibiting letting, sub-letting or sub-division specified in s. 12 of the Land Act, 1965, and to the provisions restricting the vesting of interests specified in s. 45 of that Act but nothing in this case arises on that matter. Many other house purchasers had entered into similar agreements and when their respective leases were executed they were entered as burdens on the folio. The Land Commission had already consented to the sub-division and letting of the property for the building purposes in question. By a letter dated the 6th April, 1973, the solicitors for the construction company had informed the respondents that none of the burdens affecting the property comprising Folio 58474 of the Register of Freeholders of County Cork affected the property being demised to the plaintiffs. They further certified that there were no dealings pending which would adversely affect the plaintiffs’ title. In fact on the 12th July, 1972, a charge by deposit of title deeds had been created by the construction company in favour of Lombard and Ulster Banking (Ireland) Limited and a certificate of registration of such charge pursuant to s. 104 of the Companies Act, 1963, was issued on the 21st July, 1972. The mortgage by way of deposit was for the purpose of securing all monies which were due or would thereafter become due or from time to time accruing from the construction company to Lombard and Ulster Banking (Ireland) Limited.
The method of carrying out the building development in question was, on the evidence, one of acquisition of the land to be developed by the construction company and the mortgaging of the land by deposit of title deeds to raise the money necessary to carry out the development. The development would also be financed by each prospective house purchaser who would enter into a building contract and pay for the building periodically in accordance with the building contract. At the date of completion of each house the lease would be executed to the purchaser. Lombard and Ulster Banking (Ireland) Limited would in the ordinary course of events release from their charge the site of the house in question so that the lease could be executed free from any such encumbrance. In return the finance company would be paid by the construction company out of the proceeds of the building contract the appropriate sum for the release of that particular site. This apparently was a common method of financing building developments and was well known to members of the solicitors’ profession, including the defendants.
An obvious danger in this system of financing building development was that if the builder were to become insolvent he would be deprived of the mortgaged property by the finance institution which had acquired the charge over the property. Furthermore, if for any reason the builder was unable to complete the building the purchaser could also be at risk in that the ultimate cost to him would be much greater if he had to employ another builder to complete the building and pay off the finance company himself or alternatively to suffer the loss of the partly built house and of the site. In such a case a purchaser would obviously be in a very much more vulnerable position than one who already had a lease of a site before he entered into the building contract.
In the present case a £1,000 deposit was paid as a booking fee on the 10th April, 1973, to the builders. Later the builders demanded the stage payments appropriate to first floor joist level of £2,500. The sum was eventually paid on the 27th April, 1973. In the interval there had been a very considerable dispute arising out of the plaintiffs’ complaint that they were not satisfied with the manner in which the building was being executed and refused to pay until their wishes were accommodated. The matter went so far that on the 13th April, 1973, the builders were willing to refund the deposit to the plaintiffs and call off the whole arrangement. The plaintiffs had also experienced difficulties in obtaining bridging finance which was part of the reason that they found some difficulty in paying the £2,500 which had been demanded. During the disputes between the plaintiffs and the builders the defendants, as the plaintiffs’ solicitors, gave them full and ample warning of the danger of losing their prospects of a loan from the Royal Liver Society. The defendants made strenuous efforts to get the Royal Liver Society to extend the period during which the loan could be taken up. Eventually the society withdrew altogether.
On the 22nd February, 1973, the defendants had sent to the building company a set of requisitions on title. In reply they were told, among other things, that the land certificate would be furnished before registration of the lease as a burden on the folio on the closing of the sale. A certified copy of the folio was sent to the defendants in reply to another requisition. Nothing on the folio and nothing in the answers furnished to the various requisitions disclosed that the property was the subject of a mortgage by way of deposit of the land certificate. As this was registered land such a deposit would not appear on the folio. No search was made in the Companies Office. As the building company was a limited company under the Companies Acts there should be a record in the Companies Office of any deposit of title deeds of the company’s property. In fact there was such a record.
The defendants had not made any search in the Companies Office and thus they did not make themselves aware of the fact that the site in question was subject to the mortgage. They were therefore not in a position to, and did not, inform their clients of the existence of that mortgage. They had explained to the plaintiffs that under the contract they would be obliged to make payments at various stages in the amounts provided and did point out the risk of losing this money should the builders go into liquidation during the course of construction. The plaintiffs understood this risk and elected to take it. However, none of these warnings turned upon the possibility of the site not being available.
The plaintiffs have alleged that the defendants were negligent and in breach of their contract with the appellants for not discovering the mortgage by making the appropriate searches in the Companies Office and of warning them of this additional risk. The plaintiffs had already paid the builders £8,000 on foot of their building contract when the builders went into liquidation. This followed a resolution of the shareholders of the building company on the 18th October, 1974, when it was resolved that the company be wound up. The lease had not yet been executed. The company was, through its liquidator, eventually compelled to grant a lease of the premises to the plaintiffs but that, of course, was not valid as against the bank. The bank was and is willing to release the site upon payment to them of £6,000, but not otherwise. In default of such payment they are apparently prepared to recover the property from the plaintiffs and, of course, with it would go the house which has now been built upon it.
The defendants, in answer to the claim in negligence, have stated that they acted in accordance with the common practice of solicitors in these matters, that is to say not to make all the necessary inquiries until the time for granting the lease had arrived. It appears that there is no general practice of pre-contract searches by solicitors in advising purchasers with regard to the purchase of houses provided by a system of a building contract to be followed by a lease. The question in this case is whether such a common practice has such inherent defects that they ought to be obvious to any person giving the matter due consideration.
It is clear from the evidence given by solicitors, including the defendants in this case, that this particular risk was well known to them and that they appreciated that in cases where money was being paid out during the course of a building contract if the site was not already secured it would be lost in the event of the insolvency or liquidation of the builder. In a case where no money was being paid out on foot of a building contract until completion then the risk would, to a very large extent, be diminished, even though in the event of loss of the site the purchaser might be very disappointed and might indeed suffer damage. While in a case such as the present one it could well be that the plaintiffs, even if they were made aware of the risk, might have elected to go on but the fact is that they were not made aware of it and so it is idle to speculate on what they might have done if they had become aware of it. In this transaction the plaintiffs’ position was fraught with very grave risks. The first one was that pointed out by their solicitors, namely, that by making periodic payments during the course of the building they were liable to lose it all if the builder went bankrupt or went into liquidation or, alternatively, they might be able to mitigate their loss by getting somebody else to complete the building. There was ample evidence that the plaintiffs were fully aware of this risk and accepted it. The second risk in their situation was the question of the site itself. They were not warned of this and the question is whether the defendants’ failure to discover the mortgage and to pass the information on to the plaintiffs was negligent on the part of the defendants. In my view it was.
It is quite clear on the evidence in the case that this method of financing building was well known to solicitors and they also knew the risks inherent in it. In a case where the builder was a limited company, as well as making a search in the Land Registry it would also be clearly necessary to make a search in the Companies Office. It may well be that the general practice of solicitors not making these searches until the time has arrived for completion was based upon the experience that in most cases nothing goes wrong. However, that practice does not obviate the risk clearly inherent in such a practice. The whole object of a search is to discover these matters and no solicitor can permit his client to purchase lands or to commit himself irrevocably financially in the purchase or development of lands unless he has first of all ascertained whether or not the land is free from encumbrances. If it is not he must bring that fact to the notice of his client and allow the client, after proper advice, to decide whether or not he should take the risk of accepting the transaction with the risk posed by the existence of the encumbrance.
In his judgment the learned President of the High Court cited a passage from the decision of this Court in O’Donovan v. Cork County Council [1967] I.R. 173. In my view the last paragraph of that passage governs this case. The learned President in deciding against the plaintiffs relied upon a passage in an English judgment, Simmons v. Pennington & Son [1955] 1 W.L.R. 183. In that case the vendor had purchased shop premises in 1922. They were then being used as a shop and that user had continued ever since then. The premises, however, were subject to a restrictive covenant imposed by an indenture of 1870 under which their user was restricted to use for residential purposes. When the premises were put up for sale in 1951 the vendor in the conditions of sale stated:
“The property is sold subject to the restrictive covenant as to user and other matters contained in a deed dated 29th September, 1870 . . . as far as the same are still subsisting and capable of taking effect, and the purchaser shall in the conveyance to him covenant to observe the same in so far as aforesaid and to indemnify the vendor in respect thereof. A copy of the said restrictive covenants may be inspected . . . and the purchaser whether he inspects the same or not shall be deemed to purchase with full notice thereof.”
The purchaser bought the premises at the auction and signed the contract of purchase. He made requisitions and one of them was the following:
“Is the property or any part thereof subject to any covenant or agreement restrictive of the user or enjoyment thereof or otherwise?
If so has the same been duly observed or performed?”
The answer given to the vendor’s solicitor to that was:
“Yes. See special condition No. 7. There appear to have been breaches of the covenant as to user but no notice of breach has been served.”
The purchaser’s solicitors then wrote to the vendor’s solicitors stating that the purchaser had not been informed before the sale that there was a restrictive covenant which restricted the use of the property to that of a private dwellinghouse and the purchaser was not prepared to complete and requested that the stakeholder should be instructed to return the deposit. This was refused and in the meantime the property, which was not insured by either party, was very badly damaged by fire. In the case which followed Denning L.J. (as he then was) expressed the view that the answer to requisition No. 14 was a fatal mistake in that it enabled the purchaser to get out of his bargain and that he was thus entitled to cancel the contract forthwith. He also held, however, that he was satisfied that the solicitors who gave the response were not negligent and expressed the view that the restrictions were in all probability obsolete but nevertheless the solicitors could not assert categorically that they were. The requisition to which the answer had been given was described as “a stock requisition” but the answer given was, in the view of the learned judge, not a negligent answer. The Court of Appeal went on to hold that it was ill luck that the words which the solicitors used instead of protecting their client amounted to repudiation of the contract but that was not the solicitors’ fault. It could not have been reasonably anticipated, the Court thought, that such a repudiation would flow from the answer to the requisition and that they had acted in accordance with the general practice of conveyancers. The Court went on to observe that no ill consequence had ever been known to flow from the answer. In the result, the Court held that the solicitor was not guilty of a breach of duty to his client. A number of observations may be made about that particular case. The first is that the conditions of sale were not particularly candid and the second is that it could scarcely be regarded as negligence to give a truthful answer to a requisition. It may well have been thought that a solicitor might not reasonably foresee that telling the truth in what was a stock answer to a stock question would fail to satisfy a purchaser. However, in my view, the case is totally different from the present case. The risk in the present case cannot be neutered by describing it as a stock risk. It is a very substantial and real risk. The fact that it was frequently undertaken does not in any way diminish the danger to which it gives rise. The consequences of the risk materialising could not be said to be unforeseeable as the evidence in this case indicates that it was a well known risk and the consequences were obvious if it should materialise. In my view, the decision in Simmons v. Pennington & Sons [1955] 1 W.L.R. 183 is not applicable.
I have had the advantage of reading the judgments delivered by the then President of the High Court in Taylor v. Ryan (Unreported, 10th March, 1983) and the judgment of Mr. Justice Murphy in Kelly v. Crowley [1985] I.R. 212. The principles enunciated in those cases confirm, in my view, that the defendants were guilty of a failure in the duty they owed to the plaintiffs to the extent that they were negligent in law. I would therefore set aside the order of the High Court and remit the case to the High Court for the purpose of having damages assessed.
Henchy J.
When the plaintiffs engaged the defendants to act as their solicitors in the purchase of a house, they were entitled to believe that their interests would be protected by the defendants with the degree of care to be expected from a reasonably careful and competent solicitor. That duty of care may be said to arise either as a matter of contract, by reason of an implied term to that effect in the contract of retainer, or alternatively, as an aspect of the tort ofnegligence arising out of the proximity of the relationship between solicitor and client: see Finlay v. Murtagh [1979] I.R. 249.
In deciding whether the plaintiffs are entitled to succeed in their claim for damages for want of reasonable care on the part of the defendants, it is necessary to underline certain features of the house purchase in question. The house had yet to be built. The site of the house was one of a number of sites which were being developed by a building company. Those sites were contained in Folio 58474 of the Register of Freeholders for the County of Cork and the registered owner was the building company. The building company were to build a house on one of those sites for the plaintiffs for the sum of £9,450. That sum was to be paid in instalments payable at different stages of the building of the house, namely £1,000 as a booking deposit, £2,500 at first floor, £2,000 at roof-plate level, £2,500 at internal plastering and £1,450 on completion. In conjunction with that building agreement, the building company agreed to grant a 999 years lease of the house when it was completed.
The plaintiffs instructed the defendants to act as their solicitors in connection with the transaction before they entered into any written contract with the building company. The contract to build the house was executed by the parties on the 19th February, 1973, and the agreement to grant the lease was executed on the same date. The plaintiffs’ plea of negligence rests on the complaint that before they bound themselves contractually, the defendants as their solicitors should have made a search in the Companies Office to ascertain if a charge on the site had been registered by the building company under the Companies Act, 1963. If such a search had been made it would have shown that the building company had given a charge to a bank, by deposit of title deeds, on the lands on Folio 58474 to secure all monies due by the building company to the bank. Had that position been thus disclosed, the defendants would doubtless have informed the plaintiffs that the bank were equitable mortgagees and have warned them of the perils involved in making stage payments to the building company, who had not the beneficial title and against whom there would be no effective redress in case of insolvency.
In ignorance of the bank’s interest in the site, the plaintiffs executed the building agreement and the agreement for a lease. The defendants investigated the title in the normal way by serving requisitions on title. Neither the replies to the requisitions nor the certified copy of the folio disclosed the charge in favour of the bank. Only a search in the Companies Office would have brought to light that charge, and such a search was not made.
Meanwhile, the plaintiffs proceeded to make the stage payments required by the building contract. They had paid stage payments totalling £8,000 when the building company became insolvent and went into liquidation. While the liquidator was eventually prepared to grant the plaintiffs the lease contracted for, such a lease is valueless because the equitable estate is
vested in the bank as a result of the charge, and the bank are not prepared to release the site from their charge unless they are paid £6,000.
The present claim by the plaintiffs against the defendants for damages for negligence and/or breach of contract rests on the contention that the financial loss incurred by them in connection with the attempted purchase of this house was caused by the defendants’ failure to search for and discover the charge in favour of the bank. In particular they complain that before they were allowed by the defendants to enter into contractual relationship with the building company the defendants should have ascertained the bank’s interest in the site and warned the plaintiffs of the financial risk involved in proceeding with the transaction when the building company had not an unencumbered title.
I have no doubt that the financial disaster that has befallen the plaintiffs may be said to result from the defendants’ failure to discover and bring to their notice, before the contract, the existence of the bank’s charge. The real question is whether that failure amounts to negligence by the defendants as solicitors.
The general duty owed by a solicitor to his client is to show him the degree of care to be expected in the circumstances from a reasonably careful and skilful solicitor. Usually the solicitor will be held to have discharged that duty if he follows a practice common among the members of his profession: see Daniels v. Heskin [1954] I.R. 73 and the cases therein referred to. Conformity with the widely accepted practice of his colleagues will normally rebut an allegation of negligence against a professional man, for the degree of care which the law expects of him is no higher than that to be expected from an ordinary reasonable member of the profession or of the speciality in question. But there is an important exception to that rule of conduct. It was concisely put as follows by Walsh J. in O’Donovan v. Cork County Council [1967] I.R. 173, at p. 193:
“If there is a common practice which has inherent defects, which ought to be obvious to any person giving the matter due consideration, the fact that it is shown to have been widely and generally adopted over a period of time does not make the practice any the less negligent. Neglect of duty does not cease by repetition to be neglect of duty.”
The reason for that exception or qualification is that the duty imposed by the law rests on the standard to be expected from a reasonably careful member of the profession, and a person cannot be said to be acting reasonably if he automatically and mindlessly follows the practice of others when by taking thought he would have realised that the practice in question was fraught with peril for his client and was readily avoidable or remediable. The professional man is, of course, not to be judged with the benefit of hindsight, but if it can be said that if at the time, on giving the matter due consideration, he would have realised that the impugned practice was in the
circumstances incompatible with his client’s interests, and if an alternative and safe course of conduct was reasonably open to him, he will be held to have been negligent.
I consider it to be beyond doubt that it was inimical to the plaintiffs’ interests for the defendants to allow them to enter into contractual relations with the building company, and in particular to bind themselves to make stage payments, without first making a search in the Companies Office, which would have shown that the beneficial owner of the site was the bank. Because of the defendants’ default in that respect, the plaintiffs were left open to disappointment and financial disaster if, as happened, the building company proved to be unable to discharge their indebtedness to the bank. As the evidence in the High Court showed, in not making that search the defendants were following a conveyancing practice common at the time among solicitors. However, adherence to that practice can avail as a defence only if it be shown that a reasonable solicitor, giving consideration at the time to the interests of the client, would have justifiably concluded that a search in the Companies Office was unnecessary or undesirable. Having regard to the fact that no undue delay, expense or difficulty was involved in making such a search, and bearing in mind that financial disaster of the kind actually sustained by the plaintiffs was reasonably foreseeable by the defendants as a risk for the plaintiffs, I consider that, notwithstanding that the defendants in not carrying out a search were conforming to a practice widespread at the time in the profession, they were nevertheless wanting in the duty of care owed by them to the plaintiffs. It is to avoid detectable pitfalls of the kind that beset the plaintiffs that prospective purchasers engage solicitors to act for them.
I would allow the plaintiffs’ appeal and remit the case to the High Court for the assessment of damages.
Griffin J.
The facts and the circumstances leading to the institution of proceedings in this action are fully set out in the judgment of the learned President (as he then was) and in the judgments that have been delivered. The sole question which arises for decision on this appeal is whether the defendants, as the plaintiffs’ solicitors, were in breach of the duty they owed to the plaintiffs, in failing to carry out a search in the Companies Office against J.B. Construction Company Ltd. (“the company”), with whom they had entered into the building contract and agreement for a lease on the 19th February, 1973, prior to the execution of the said contract and agreement for a lease, or before the payment of the deposit of £1,000 and the subsequent stage payments made under the contract. If such a search had been made the defendants would have discovered that, on the 12th July, 1972, the company had mortgaged the lands registered on Folio 58474, being the lands on which the company had contracted to erect a dwellinghouse for the plaintiffs, by equitable deposit of the land certificate with Lombard and Ulster Banking (Ireland) Limited, and that the mortgage had not been redeemed.
The equitable mortgage was a charge on land or an interest therein created by the company within the meaning of s. 99 of the Companies Act, 1963, and, therefore, insofar as any security on the company’s property was conferred thereby, would be void against the liquidator and any creditor of the company unless it was duly registered in the Companies Office within 21 days after the date of its creation. The charge had been registered on the 21st July, 1972.
The manner in which the company financed the building development has been described in the judgment of Walsh J., and was one which was, to the knowledge of solicitors in general and of the defendants in particular, in common use for several years prior to the month of February, 1973. By reason of the very high cost of the acquisition and development of land, building companies were invariably forced to borrow heavily against the lands to enable development to be carried out.
Requisitions on title were furnished by the defendants to the company’s solicitors on the 27th February, 1973. The replies thereto were sent to the defendants on the 6th April, 1973. In the meantime, the deposit of £1,000 was forwarded to the company’s solicitors on the 23rd February, 1973. It was stated in the replies to the requisitions that the land certificate would be furnished on the closing of the sale to enable registration of the lease as a burden on the folio. A certified copy of the folio was supplied and this showed a clear folio. The defendants relied on the assurance in the replies to the requisitions that all the documents would be handed over on closing, at which time the house would have been completed, and at which time they would make all the necessary searches. Unfortunately for the plaintiffs, after they had made a number of the stage payments provided for in the contract, and before the house was completed or the lease was executed, on the 18th October, 1974, the company went into liquidation. Although by arrangement with the liquidator the house was subsequently completed and occupied by the plaintiffs, and the liquidator granted the lease to the plaintiffs, the plaintiffs have no proper title to the site on which their house was built as this lease is of no value as against the bank who have the equitable estate in the lands.
The plaintiffs allege that the difficulties which have arisen and the serious position in which they now find themselves would have been obviated if the defendants had made a search against the company in the Companies Office either before the contract was signed or, at the latest, when the replies to the requisitions were received. This search would of course have disclosed the equitable mortgage, and the defendants could then have advised the plaintiffs as to the risks involved to them if the company should go into liquidation before the completion of the house and the granting of the lease. It would then be for the plaintiffs, on being fully advised by the defendants, to decide whether they wished to proceed with the transaction.
The plaintiffs claim that the failure to discover the equitable mortgage was due to the negligence and breach of contract on the part of the defendants. The defence is equally straightforward. The evidence established that, at the time this transaction was carried out, it was the universal practice of conveyancing solicitors not to make searches until immediately before completion, and that pre-contract searches were unknown in conveyancing practice throughout the country. Having regard therefore to the existing practice, they claim that there was no negligence or breach of contract on their part in not making a search in the Companies Office. They submit that a solicitor, no less than a medical practitioner, “cannot be held negligent if he follows general and approved practice in the situation with which he is faced: see Daniels v. Heskin [1954] I.R. 73 and the cases referred to therein” – per Walsh J. in O’Donovan v. Cork County Council [1967] I.R. 173 at p. 193, a case in which the issue was whether the death of a patient was due to the negligence of a medical practitioner.
Whilst it is well settled that ordinarily a professional person will not be held to have been negligent if he follows established or approved custom or practice, that proposition is, as Walsh J. pointed out at p. 193 of O’Donovan’s Case , not without qualification. There he said:
“If there is a common practice which has inherent defects, which ought to be obvious to any person giving the matter due consideration, the fact that it is shown to have been widely and generally adopted over a period of time does not make the practice any the less negligent. Neglect of duty does not cease by repetition to be neglect of duty.”
The net question in this case is therefore whether there was an inherent defect in the practice of refraining from making searches in a case such as the instant case until immediately before completion. In the case of what may be called a conventional sale of a ‘second-hand’ house the universal practice has for a very long time been to postpone the making of searches until immediately before the completion of the sale. In such cases, this practice affords adequate protection for the purchaser. He pays his deposit to a stakeholder and the purchase monies are not paid to the vendor until the closing of the sale, by which time the title has been fully investigated. If the vendor cannot show a good title, the sale falls through and, while the purchaser may lose the benefit of his bargain, he does not lose his purchase money.
However, in the case of a contract to build a house, coupled with an agreement for a lease to be granted when the house is completed, the price
being made in stage payments, different considerations arise. The person for whom the house is being built does not acquire a title to the house or to the site on which it is built until the house has been completed, the last of the stage payments made, and the lease granted to him. If the building company should go into liquidation prior to completion, and the transaction was financed in the manner described earlier, he is in danger of losing all the stage payments already made and of losing the site also. The defendants were aware that the manner in which the building development in this case was in fact financed was one in common use, and that, if this development was financed in that way, there was a high risk that if the company went into liquidation the plaintiffs would lose the stage payments made prior to liquidation and that the liquidator of the company might be unable to grant the lease contracted for. This could have had disastrous consequences for the plaintiffs, bearing in mind in particular the fact that in this country a dwellinghouse is invariably the most substantial asset, if not the only real asset, of most householders.
The standard of care required of a solicitor in carrying out the business entrusted to him by his client is the ordinary level of degree of skill and competence generally exercised by reasonably careful colleagues in his profession. The practice of postponing searches until completion, which was standard practice in the case of sales of ‘second-hand’ houses, had been adapted and continued in the case of housing development schemes which have come into common use in the past thirty years or so, and was therefore the universal practice of solicitors in cases such as the instant case. However, notwithstanding that this had become the universal practice, in my opinion, any reasonably careful solicitor, giving due thought to the manner in which such developments were usually financed and to the likelihood that the land certificate was deposited with a financial institution by way of equitable mortgage, would come to the conclusion that in such a high risk industry as the building industry, it was virtually certain that cases would arise in which building companies would collapse before the houses being erected by them were completed. Such a solicitor would accordingly decide that the practice of postponing a search in the Companies Office – one which the defendants accepted could be carried out without undue delay and at little expense or inconvenience – until immediately prior to completion was one which did not adequately protect his clients and was inherently defective and should not be followed.
In the instant case the defendants should therefore have carried out such a search before the plaintiffs entered into the contract with the company, and their failure to do so was, in my judgment, a breach of the duty of care owed by them to the plaintiffs, and the loss which the plaintiffs suffered resulted from that breach. I would accordingly allow this appeal and concur in the order proposed by Walsh J.
Hederman J.
I concur.
McCarthy J.
The facts of the case are set out in such ample detail in the judgment delivered by the learned President on the 21st December, 1979, that I do not find it necessary to refer to them other than to identify the events that occurred on certain dates.
12th July, 1972 – J.B. Construction Company Limited (the company) mortgaged the lands by equitable deposit of the land certificate with Lombard and Ulster Banking (Ireland) Limited (“the bank”).
19th February, 1973 – the plaintiffs entered into an agreement in writing with the company whereby the company agreed to erect a dwellinghouse on part of the lands for the sum of £9,450 and that the said sum be payable by stage payments.
27th February, 1973 – requisitions furnished by the defendants to the company’s solicitors.
6th April, 1973 – reply sent by the company’s solicitors.
23rd February, 1973 – cheque for deposit of £1,000 sent to the company’s solicitors and building commenced shortly thereafter.
27th April, 1973 – second stage payment of £2,500 sent to the company.
12th June, 1973 – third stage payment of £2,000 paid to the company.
13th December, 1973 – the company’s solicitors purported to terminate the building contract and offered to return the money paid by the plaintiffs less costs and expenses.
22nd February, 1974 – next stage payment of £2,500 paid to the company.
Before the end of September, 1974 – lease executed by the plaintiffs but the company refused to execute it because the balance of the account had not been paid.
18th October, 1974 – the company went into liquidation.
Early 1976 – the dispute as to the balance due was settled with the liquidator.
The working arrangement between the bank and the company during the time when the property was being developed was that the bank were accustomed to release the land certificates so as to permit the registration of individual leases of sites on the folio on payment of a proportion of the total purchase price received by the company for the building of the house. Theoretically, it was not a purchase price because the “employer” contracted with the builder (the company) to build a house for a stated price payable in stages. The method used was one of widespread application for many years, save in respect of the stage payments, and was a method of avoiding the heavy stamp duty payable upon the sale and purchase of a completed house. The fiction, as fiction it was, was that the “employer” was acquiring a piece of land upon which he proposed to build a house and contracted with the builder as an ordinary building owner. The reality was that the builder, in one guise or another, owned a piece of land which he was developing in accordance with a pre-arranged scheme and would build a number of houses to a fairly set design, subject to minor variations, and, on completion, arrange for a lease for the “employer”. I believe it is not unknown for such transactions to have taken place in respect of houses that were well on the way to completion before any “building contract” was executed. Such is not the case here. By 1973 this method, a convenient and useful one, had been operating for more than twenty years but with one significant change of fairly recent origin – the introduction of staged payments. If the “employer” merely paid a deposit and no further sum until completion, then, in the event of a problem such as occurred in this case – liquidation of the building company – or any other problem that made it impossible to complete the transaction, the employer could recover his deposit and would not have paid any other monies. But if payments were made at different stages in the course of construction and what happened here were to occur, there was a grave danger of the very loss that was caused to the plaintiffs.
Section 99 of the Companies Act, 1963, provides:
“(1) Subject to the provisions of this Part, every charge created after the fixed date by a company, and being a charge to which this section applies, shall, so far as any security on the company’s property or undertaking is conferred thereby, be void against the liquidator and any creditor of the company, unless the prescribed particulars of the charge, verified in the prescribed manner, are delivered to or received by the registrar of companies for registration in manner required by this Act within 21 days after the date of its creation, but without prejudice to any contract or obligation for repayment of the money thereby secured, and when a charge becomes void under this section, the money secured thereby shall immediately become payable.”
The charges in s. 1 are detailed in sub-s. 2 and include “a charge on land, wherever situate, or any interest therein . . .” The equitable mortgage of July, 1972, was such a charge and was, in fact, registered by the registrar of companies on the 21st July, 1972. Section 103 in effect required the registrar to keep a register of such charges, which register shall be open to inspection by any person on payment of the appropriate fee. Further, by s. 104, the registrar shall give a certificate of the registration of any charge registered.
The main thrust of the plaintiffs’ claim is that the defendants, as their solicitors, in discharge of their professional duty as such, should have carried out a search in the Companies Office before, so to speak, allowing the plaintiffs to enter upon the transaction involving the series of payments to which I have referred. I quote from the judgment of the learned President (p. which I have referred. I quote from the judgment of the learned President (p. 242):
“It is asserted on behalf of the plaintiffs that had the defendants, therefore, either before the signing by the plaintiffs of the building contract and the agreement for the lease or before the payment of the first deposit and payment of subsequent stage payments, carried out a search in the Companies Office against the company they would have ascertained the existence of this equitable mortgage. They then should, in exercise of a standard of reasonable care in the protection of the plaintiffs’ interest, it is alleged, have required the execution of a contract to which Lombard and Ulster Banking (Ireland) Ltd. would be a party which provided that upon payment by the plaintiffs of the amounts due on foot of the building contract the bank would release the land certificate and permit the registration of a lease of this site on the folio. In the alternative it is stated that if the defendants had by a search in the Companies Office, prior to the execution by the plaintiffs of the agreement for the lease or at least prior to the payment by them of any monies on foot of the building contract ascertained the existence of the mortgage by equitable deposit of title deeds that they could and should have insisted upon the execution by the company then and the immediate registration of a lease of the site before permitting the plaintiffs to pay any money on foot of the building contract.
The main defence of the defendants to these allegations was that at the time at least of this transaction in 1973 and 1974 the universal practice of conveyancing solicitors was to make searches immediately prior to the completion of a transaction only and that pre-contract searches were not known as a custom or practice in ordinary conveyancing in this country. Furthermore it was submitted on behalf of the defendants that, although the building contract in this case envisaged the employer as being in possession of the lands consisting of the site for the dwellinghouse either under an agreement for a lease or under a lease itself, the universal practice of lessors and builders entering into a transaction in the form in which this transaction was did not provide for any execution of a lease by the lessor unless and until such time as the entire of the monies on the building contract had been paid. In these circumstances the defendants assert that, to hold them guilty of negligence in failing to avail of a precaution which, though it would have avoided the particular loss the plaintiffs have suffered in this case, was not one known as part of the conveyancing practice of solicitors, would be to apply a false standard of care and skill to them and would be in conflict with the decisions as to the standard of care and skill which the law requires from a solicitor in the carrying out of his professional work.”
The only evidence to the general practice of conveyancing solicitors was that of the defendants themselves and of Mr. John Buckley, a solicitor well known in conveyancing practice in Dublin; the effect of that evidence was that at the relevant time it was the universal practice of solicitors not to make searches until immediately prior to completion. It is appropriate, however, to refer to a portion of Mr. Buckley’s evidence (Q. 33 et seq.)
“Q. May I take first of all, the first stage of buying a house, an existing house. I suggest to you that the whole concept of conveyancing in relation to buying an existing house is that the purchaser does not part with any money until he gets his title?
A. Apart from the deposit.
Q. In relation to the deposit you would never, except in exceptional circumstances, release the deposit to the vendor?
A. In exceptional circumstances.
Q. The concept would be that you would seek to hold your client’s money for his benefit until you were in a position where you could satisfy yourself that the vendor could meet his part of the bargain?
A. Yes.
Q. On the subject of searches, I take it what you are doing is you are satisfying youself at the time you are parting with the money that your client is getting what he is parting with his money for?
A. Yes.”
This brief passage from the transcript identifies, for the purpose of this case, the essential duty of the solicitor subject to which evidence as to the existing practice at the relevant time must be examined. The learned President, in his judgment referred to the following passage from the judgment of Walsh J. in O’Donovan v. The Cork County Council [1967] I.R. 173 at p. 193, a medical negligence case.
“If there is a common practice which has inherent defects which ought to be obvious to any person giving the matter due consideration, the fact that it is shown to have been widely and generally adopted over a period of time did not make the practice any the less negligent. Neglect of duty does not cease by repetition to be neglect of duty.”
The President accepted the proposition as applicable to the case that the alleged professional negligence by a solicitor and added – . . . . “it seems to me that the universality of a particular practice adopted by an entire profession must itself be evidence that it is not a practice which has inherent defects which ought to be obvious to any person giving the matter due consideration.” I demur to this proposition.
In Kelly v. Crowley [1985] I.R. 212 an action for damages for negligence alleged against the defendant as a solicitor, Murphy J. sounded a warning appropriate to the instant appeal:
“In all cases involving allegations of negligence, but particularly negligence alleged to have been committed by experts, there is a danger of judging the conduct of the defendant with the benefit of knowledge emerging after the event or indeed by reference to a standard more theoretical than practical.”
I am conscious in looking back at events that occurred twelve years ago that this danger of being wise after the event is very real. I am content, however, to adopt an approach that seeks to stand apart from the evidence as to the general practice of the time and pose the question much in a manner in which it was done in the course of the cross-examination of Mr. Buckley which I have cited. This was not a consideration in respect of the capacity of the builder, the quality of his workmanship, the efficiency or speed of completion; it was a consideration more fundamental and more akin to what one might properly expect from a solicitor acting in the purchase of an existing house. If the solicitor had asked himself or if he had been asked by his client as to whether or not the money being paid by the client to a third party was “safe”, there was only one answer – “No”. On being so informed it is highly unlikely that the plaintiffs would have entered into the contract and made the payments. The question of making a search in the Companies Office might well have arisen; if it had, the disclosure of the equitable mortgage surely would have deterred the plaintiffs from any such commitment until their position was secured. In my view, the common practice testified to by Mr. Buckley did have inherent defects which ought to have been obvious to any person giving the matter due consideration. The irony is that quite clearly the defendants, as solicitors, in every other respect acted with the meticulous care one would expect from a firm of their long-standing and probity. The trees of the minutiae of conveyancing and the dispute over the construction of the house itself may well have obscured the wood of the real danger as to the solvency of the builder, the company. In the replies to most comprehensive requisitions the defendants had been assured that the consent to the use of the land certificate would be handed over on closing with a like consent to the use of the certificate for registration of the lease as a burden on the folio. The unfortunate effect of all this information was to distract from the real danger. A wholly new factor had entered into the relationship between the “employer”and the builder; it cannot be a legal principle that a profession is, so to speak, entitled to “one free bite” – to wait until damage has occurred before taking an obvious means of avoiding such damage. The possibility of there
being a charge against the property upon which the builder was going to construct a house using the “employer’s” money for that purpose was a clear and present danger; it was the solicitor’s duty to guard against it. This neglect of duty did not cease by repetition to be neglect of duty. The learned President cited a passage from the judgment of Hodson L.J. in Simmons v.Pennington and Son [1955] 1 W.L.R. 183:
“In Cooke v. Falconer’s Representatives Lord Fullerton said ‘a professional man does not warrant that what he does will certainly have the effect which is expected from it . . .
He warrants only that he should bestow on the matter committed to him, the skill generally possessed by his brethren in the profession. It is not enough in order to recover damages from a professional man to show that something which was committed to him to do, has not had the effect which was expected from it; he must show an act of gross ignorance, such as could not have been committed by any other ordinarily informed member of the profession’.”
Whilst I accept that a man does not warrant that what he does will certainly have the effect which is expected from him, I reject the requirement of “an act of gross ignorance such as could not have been committed by any other ordinarily informed member of the profession.” This imposes too high a burden of proof upon the client, I prefer the simplicity of the qualification stated by Walsh J. in O’Donovan v. Cork County Council [1967] I.R. 173.
In the result, I differ from the view of the learned President when he states that “I am not satisfied that there is evidence before me on which I could properly hold that the conveyancing practice which had been universal up to the happening of these events was one which on due consideration an ordinarily skilled person would have decided had inherent defects.” I would allow the appeal, enter judgment for the plaintiffs in the terms of paragraph 1 of the prayer in the statement of claim and remit the case to the High Court for the assessment of damages.
O’Carroll -v- Diamond [2005] IESC 21 Supreme Court Kearns J.
I have read the judgment about to be delivered by Hardiman J on the issue of negligence in this case and agree with his reasoning and conclusion. I would also be of opinion that this appeal must fail on causation grounds.
In cases such as the present one, a claimant will only recover damages if the court is satisfied on the balance of probabilities that the claimant would have acted on such advice had it been given and, if so, in a particular way which would have avoided the loss. In opening the appeal Mr. Dwyer, counsel on behalf of the appellant, accepts that proof of causation is a necessary prerequisite to the recovery of compensation.
The point is illustrated in this context by the case of Sykes v. Midland Bank Execular and Trustee Company Ltd, [1971] 1 Q.B. 113 in which a solicitor negligently failed to advise the client that the terms of a lease he was proposing to take prohibited him from sub-letting with the lessor’s consent. The client took the lease and subsequently wished to sub-let the property. The lessor refused to give consent and the client claimed from the solicitor for the loss of rental income. The Court of Appeal considered in the light of the evidence that the client had taken other leases with similar provisions and that, the balance of probabilities, he would have taken the lease in question even if correctly advised as to its terms.
In that case, the evidence was unusually unequivocal in that the plaintiff’s evidence was that he would have executed the underlease in any event. Lord Salmon stated (at 127 G-H):-
“… Mr. Sykes was a remarkably candid witness. He, no doubt disappointingly, would not say that it would have made any difference had the proper advice been given… at the end of his evidence it certainly appeared that in his view it was as likely as not that the plaintiffs would have acted just as they did even if they had had proper advice about the effect of clause 2 (XI) of the underleases.”
In most cases, however, the question of whether advice would have made a difference to a claimant’s conduct involves a fairly sophisticated exercise on the part of the trial judge to determine what a particular person would have done in the specific circumstances obtaining in the case before him.
Inevitably, the trial judge will depend to a large extent upon the evidence and demeanour of the claimant when giving that evidence. The court in discharging this obligation must exercise considerable care having regard to the fact that a plaintiff’s evidence about what he or she would have done if properly advised is bound to be coloured by the fact that an adverse outcome did in fact eventuate. There is an inevitable risk that evidence given by a plaintiff in these circumstances will be coloured (whether consciously or unconsciously) with the benefit of hindsight.
This difficulty has led to widespread discussion in other common law jurisdictions, particularly with regard to advice given in the context of the doctor/patient relationship, as to how courts should go about this task. While the present context is that of solicitor/client, the underlying requirements of proof are not dissimilar. Indeed, authors Dugdale & Stanton (Professional Negligence, Butterworths; 1998 ed. Chap 18, p 397) treat the themes interchangeably. The briefest review of some of the medical cases is thus helpful, not least to decide whether the assessment of a claimant be made by reference to an objective or subjective test as to what he/she would probably have done if appropriate advice had been given.
In the United States the objective test was preferred in Canterbury v. Spence [1972] 464 F. 2d 772 and a similar approach was taken in Canada in Reibl v. Hughes [1980] 1 14 D.L.R. (3d) 1.
In Canterbury v Spence, Robinson J, in delivering the opinion of the Court, explained the preference for an objective test at p.790:-
“No more than breach of any other legal duty does nonfulfilment of the physician’s obligation to disclose alone establish liability to the patient. An unrevealed risk that should have been made known must materialise, for otherwise the omission, however unpardonable, is legally without consequence. Occurrence of the risk must be harmful to the patient, for negligence unrelated to injury is nonactionable. And, as in malpractice actions generally, there must be a causal relationship between the physician’s failure to adequately divulge and damage to the patient.
A causal connection exists when, but only when, disclosure of significant risks incidental to treatment would have resulted in a decision against it. The patient obviously has no complaint if he would have submitted to the therapy notwithstanding awareness that the risk was one of its perils. On the other hand, the very purpose of the disclosure rule is to protect the patient against consequences which, if known, he would have avoided by foregoing the treatment. The more difficult question is whether the factual issue on causality calls for an objective or a subjective determination.
It has been assumed that the issue is to be resolved according to whether the fact finder believes the patients testimony that he would not have agreed to the treatment if he had known of the danger which later ripened into injury. We think a technique which ties the factual conclusion on causation simply to the assessment of the patient’s credibility is unsatisfactory. To be sure, the objective of risk disclosure is preservation of the patient’s interest in intelligent self – choice on proposed treatment, a matter that the patient is free to decide for any reason that appeals to him. When, prior to commencement of therapy, the patient is sufficiently informed on risks and he exercises his choice, it may truly be said that he did exactly what he wanted to do. But when causality is explored at a post injury trial with a professedly uninformed patient, the question whether he actually would have turned the treatment down if he had known the risks is purely hypothetical; ‘viewed from the point at which he had to decide, would the patient have decidedly differently had he known something he did not know?’ and the answer which the patient supplies hardly represents more than a guess, perhaps tinged by the circumstances that the un-communicated hazard has in fact materialised.
In our view, this matter of dealing with the issue on causation comes in second best. It places the physician in jeopardy of the patient’s hindsight and bitterness. It places the fact finder in the position of deciding whether a speculative answer to a hypothetical question is to be credited. It calls for a subjective determination solelyon testimony of a patient/witness shadowed by the occurrence of the undisclosed risk.
Better it is, we believe, to resolve the causality issue on an objective basis: in terms of what a prudent person in the patient’s position would have decided if suitably informed of all perils bearing significance. If adequate disclosure could reasonably be expected to have caused that person to decline the treatment because of the revelation of the kind of risk or danger that resulted in harm, causation is shown, but otherwise not. The patient’s testimony is relevant on that score of course but it would not threaten to dominate the findings. And since that testimony would probably be appraised congruently with the fact finder’s belief in its reasonableness, the case for a wholly objective standard for passing on causation is strengthened. Such a standard would in any event ease the fact finding process and better assure the truth as its product.”
A similar approach was adopted in Reibl v. Hughes [1980] 1 14 D.L.R. (3d) where Laskin C.J.C. delivering the judgment of the Canadian Supreme Court disapproved the subjective test, stating as follows at p.15:-
“It could hardly be expected that the patient who is suing would admit that he would have agreed to have the surgery, even knowing of the accompanying risks. His suit would indicate that, having suffered serious disablement because of the surgery, he is convinced that he would not have permitted it if there had been proper disclosure of the risks, balanced by the risks of refusing the surgery. Yet, to apply a subjective test to causation would, correlatively, put a premium on hindsight, even more of a premium than would be put on medical evidence in assessing causation by an objective standard.”
However, a subjective approach has been adopted in Australia in Ellis v. Wallsend District Hospital [1990] 2 Med L.R. 103, Bustos v. Hair Transplant PTY. Ltd (unreported, New South Wales Court of Appeal, 15th April, 1997) and O’Brien v. Wheeler (unreported, Supreme Court of New South Wales, 23rd May, 1997).
A subjective approach has also been preferred in the United Kingdom in Chatterton v. Gerson[1981] Q.B. 432, Hills v. Potter [1984] 1 W.L.R. 641 and Smyth v. Barking H.A. [1994] 5 Med L.R. 285.
Many of these authorities were opened to me in very helpful submissions lodged in the case of Geoghegan v. Haris [2000] 3 IR 536, in which I ultimately concluded that a pragmatic approach to what a claimant would have decided was the preferred course to follow. This I took as meaning that the court could be guided, and might in certain cases be compelled, where there was a lack of other evidence, to adopt an objective test, but in other instances, where there was reliable and cogent evidence of subjective intent, then it was open to a court to take the view that the objective test could and should yield to a subjective one. I see no reason for adopting a different approach in the instant case in trying to determine what this plaintiff would have done.
There is further guidance to be derived from the medical cases. In cases of elective surgery, the failure to warn must be regarded as more likely to have caused the loss, given that a patient might well decided to forego surgery when he has a real choice in the matter. Conversely, where the medical procedure is absolutely essential and there are no real alternatives, the failure to warn of an inherent risk may be seen as making little or no contribution to the decision of the patient as to which course he or she will adopt.
This case falls four square into the latter category because of the crisis precipitated by the financial difficulties of the plaintiff’s husband. They were of such a magnitude as to threaten not only the family home, but the very survival of the family itself.
While Mr. Dwyer argued that the plaintiff would have ‘abandoned’ her husband had she been properly advised, this is nowhere apparent from the evidence given at the trial. Indeed, evidence was not led from the plaintiff to suggest that she would have altogether severed her own interest in the family home from the requirement to rescue her husband from the predicament in which he found himself. It was thus hardly surprising that the trial judge himself had to endeavour to clarify the position as follows:-
“Mr. Justice O’Neill: leaving aside that. Faced with the situation that you were faced with at the time that both you and your husband were faced with, did you realise that there was a need to, as it were, protect your husband and the only way to do that was by selling the family home available or was it a priority?
Witness: Well I would not have wanted to protect him, my Lord, because if I was let go to see the Haydens I had other options at the time. I wanted to go and see the Haydens. I should have been let go and come back after a week. There was no huge big rush to sell it on our side. I know the Haydens would want their money and I am sure their solicitor would have wanted the money but I should have been given a chance to go and see them.
Q. What did you think you could achieve by seeing Mrs. Hayden?
A. I am sure she would have taken the money in instalments or God knows what I would have achieved. I would have achieved something, particularly when it came when we were moving out of the house.”
This exchange suggests that the plaintiff’s primary concern arising out of the supposed failure to advise was the fact that it deprived her of an opportunity of negotiating with the Haydens for an extension of time within which to vacate the family home. It does not suggest that she would have adopted a radically different approach to this entire matter, and one which would have left her husband to sink, rather than swim.
At the end of the day, the trial judge was, after hearing and observing the plaintiff for the lengthy period during which she gave evidence, in the best possible position to assess the plaintiff’s credibility, either by reference to an objective or subjective standard or that favoured in Geoghegan v Harris, and it would require something quite out of the ordinary to persuade me, deprived as I am of a similar opportunity of evaluating the plaintiff, to invade in some unspecified way the function of the trial judge in that regard.
Towards the end of his judgment, the trial judge sets out his conclusions and the material upon which they are based in this regard in the following manner:-
“In her own interest what she had to gain was the retention of half of the net proceeds on a sale of the family home, either at the time of the sale to the O’Sullivans or later through a forced sale through the courts. If she opted to agree to the sale to the O’Sullivans, she would have been entitled to close on £49,000. If she refused to cooperate and a sale took place through the courts approximately 2 years later, she probably would have got less…
She would of course have had to consider the risks involved in non-cooperation and claiming her half share. Undoubtedly the Haydens would have been very aggrieved if the plaintiff adopted that course and it is probable that they would have pursued Mr. O’Carroll aggressively. This would have resulted in an application to the court to attach him for contempt for failing to have filed an affidavit disclosing where the Hayden funds had gone. If, to avoid a contempt of court, he filed the affidavit in question, he would have then have made admissions which would have placed him in jeopardy in a criminal investigation of the matter. It is probable as well that a complaint would have been made to Gardaí and that a fraud investigation would have ensued, with the likelihood of a criminal prosecution to follow.
I am mindful of the fact that the plaintiff in her evidence said that she was not interested in protecting her husband. At the time when these events were occurring, I am satisfied that it was different. No doubt the plaintiff was extremely angry with Mr. O’Carroll for getting them into an awful predicament. However, it would seem to me that it was very unlikely that she would have left him exposed to the risk of criminal prosecution and a custodial sentence, with all the attendant consequences of that for Mr. O’Carroll, but more particularly for the plaintiff herself and her children. It would seem to me that the salvaging of her half share from the sale of the family home would not in all probability have outweighed the terrible consequences for the family as a whole of criminal proceedings against Mr. O’Carroll. That is the choice she would have faced at that time.”
It seems to me that the foregoing passage clearly demonstrates that the learned trial judge put all the competing considerations in the melting pot when deciding what the plaintiff would probably have done. While Mr. Dwyer suggests there was no evidence of a pending criminal prosecution, it is undeniable that there was a risk of such a prosecution materialising, and indeed it appears that some preliminary communication had been made with local Gardaí. Mr. O’Carroll was effectively unable to swear affidavits in the court proceedings involving the Haydens because the admissions he would have been compelled to make were such as would, at the very least, have terminated his professional career as an accountant. Furthermore, as noted by the learned trial judge, the Haydens would, as a matter of probability, have pursued Mr. O’Carroll all the more aggressively if Mrs. O’Carroll had stood back from her husband’s misfortunes. Finally, and perhaps most importantly, the plaintiff was extremely conscious of her own responsibility both to her husband and her children, and indeed gave distressing testimony of the fact that her daughter had spoken to her when the news of this calamity brook, beseeching her not to separate from her husband or to break up the family.
The court was informed that the family did not, in fact, break up, at least until 1996.
Furthermore, the eventual closing of the sale of the family home did not take place until July, 1992. Whatever her initial distress and confusion, it is inconceivable that in all that intervening period the plaintiff would not herself have realised that she could, if dissatisfied with Mr. Diamond’s advices or the lack thereof, have sought advice from some other solicitor in Naas, or indeed in Dublin.
For all these reasons, I am satisfied that the learned trial judge correctly decided the issue of causation in this case and would therefore dismiss the appeal.
Hardiman J.
The plaintiff brought these proceedings against the defendant, who is a solicitor, claiming damages for professional negligence, breach of duty, and breach of contract. In his judgment delivered the 31st July, 2002 the learned trial judge (O’Neill J.) held that the defendant had been guilty of negligence but further held that the plaintiff had not suffered any loss as a result of this. He therefore dismissed the plaintiff’s claim. The plaintiff has appealed against the dismissal of her claim. The defendant, in turn, has challenged the finding of negligence.
Background
In 1963 the plaintiff married Mr. Frank O’Carroll, who is an accountant. They had four children. In the late 1980s they were living in Ballymore Eustace, Co. Wicklow, in a house which they had built and jointly owned. Adjacent to the house were some lands which were owned by a company of which the plaintiff and her husband were directors and shareholders. As well as the husband’s accountancy practice, they had various other interests: in greyhounds some of whom appear to have been kept on the lands, in an animal feed company, Alert Animal Foods Limited, in CBM Publications Limited, Carpettown Furniture Limited and Remacroft Limited. There were other companies which the plaintiff denied any knowledge.
In November, 1988, the plaintiff suffered a catastrophe from which, she says herself, she has never recovered and which is the basis of these proceedings. This was as a result of proceedings taken against her husband by Cecelia Hayden and Eugene Hayden.
The Haydens, who are mother and son, lived some miles from the O’Carrolls near Ballymore Eustace. Mr. Hayden had done some work for one of the O’Carroll companies. It appears (and this court has not seen the proceedings issued by the Haydens) that they had entrusted Mr. Frank O’Carroll with a sum significantly over £100,000 for investment purposes, and that Mr. O’Carroll had made away with this money. On the12th October, 1988, an ex-parte application was made to the High Court which made orders restraining Mr. O’Carroll from reducing his assets below £140,000, and from dealing with any property or assets of his without the leave of the court. On the 17th October, 1988, those orders were continued and it was further ordered that Mr. O’Carroll swear an affidavit, to be delivered before the 7th November, 1988, which would:-
“1. Make full disclosure of his assets inside and outside the jurisdiction, and
2. Make discovery on oath of all documents whatsoever in his possession, control or power relating to the acquisition by him of the moneys of the plaintiff and their subsequent disposition by him.”
It appears that Mr. O’Carroll, unfortunately, had no defence whatever to the Hayden proceedings. He said so himself in evidence in this action. In early November, 1988, his position was a very acute and difficult one. He consulted the defendant who retained Mr. Gerard Danaher of counsel. A consultation was held on the 3rd November, 1988, at which the matter was thoroughly explored. Mr. Danaher advised that if Mr. O’Carroll were to swear an affidavit setting out the disposition of the Haydens’ money “it would have left him in jeopardy in regard to the criminal law”, as it was delicately expressed in these proceedings. On the other hand, of course, if he did not swear the affidavit which had been ordered by the High Court he would have been liable to sanction for contempt of court. More immediate even than the possible proceedings which could have led to his incarceration was the fact that, if no affidavit was forthcoming, and no settlement possible, the Haydens’ lawyers would proceed to ventilate their complaint in open court with destructive consequences for Mr. O’Carroll’s practice as accountant, his status as a company director and financial advisor, his reputation generally and his ability to generate income. On the hearing of this appeal, it was agreed by counsel for Mrs. O’Carroll that the events of early November 1988 constituted an immediate and critical emergency not only for Mr. O’Carroll but for his family as well in view of their dependence on him.
In those circumstances it was decided to endeavour to reach a settlement with the Haydens. Solicitor and counsel had been instructed by Mr. O’Carroll that the plaintiff was a joint owner of the family home and a director and shareholder in the land owning company, Cannamore Enterprises Limited. He was advised that her consent to and participation in any settlement was critical. He assured his lawyers that the plaintiff was fully behind him and was willing to charge the family home and to take the steps necessary to allow the company to create a charge over its assets. However, he did not in fact tell her of the crisis until the morning of the 14th November to which date the action had been adjourned in the hope of settlement.
The steps mentioned above were necessary because, after discussions between counsel, it transpired that the only available basis for a settlement was a consent to judgment by Mr. O’Carroll together with the charging of the assets to secure the Haydens position pending a sale to realise the amount of the judgment. A settlement along those lines was negotiated on the 7th November, 1988. It depended, of course, on the plaintiff’s approval and participation.
In the event, a number of documents were executed by the plaintiff on the morning of the 14th November, 1988. These were: a charge over the family home and the Cannamore lands, a resolution of Cannamore Enterprises Limited, form 47 being the particulars of a charge created by a company for the purpose of the registration of the charge, Family Home Protection Act declarations for both the family home and the Cannamore Enterprises Limited lands, and a letter consenting to the use of the land certificates.
Thereafter, the proceedings brought by the Haydens were formally compromised. In the summer of 1989 the house and lands were put up for sale and were sold. Serious difficulties arose with the sale and it became necessary for the plaintiff and her husband to take Specific Performance proceedings against the purchasers, a couple called O’Sullivan. Those proceedings, too, were difficult because the O’Sullivans alleged that a side agreement had been entered into between the plaintiff and Mrs. O’Sullivan which might have invalidated the transaction. The proceedings were ultimately compromised and the sale closed in 1992, according to Counsel for the plaintiff on this Appeal.
The plaintiff’s complaints
On the 10th of November, 1994, the plaintiff issued proceedings against the defendant for breach of contract, negligence and breach of duty. A statement of claim was delivered on 21st February, 1996. After an exchange of letters about particulars, a defence was delivered on 6th June, 1996. For reasons that do not appear from the papers or from the submissions to this court, the hearing did not take place until the months of January and February 2002 and judgment was given on the 31st July, 2002.
The plaintiff’s complaints can be gathered from the statement of claim. First and foremost, she says that the defendant failed to advise her as to the necessity to obtain independent legal advice in the circumstances which prevailed on the14th November, 1988, and failed to refer her for independent legal advice. To this the defendant’s answer is a simple one: he says that he advised her in strong terms to take independent legal advice but she declined to do so. Further, the plaintiff says that she was not properly advised about her entitlement to an equity in the family home. This claim is not easy to understand since, as appears from the history above, she was a joint owner of the premises. She says that she was not advised by the defendant about the provisions of the Family Home Protection Act 1976; that the defendant failed to take the advice of counsel or senior counsel before dealing with the plaintiff; that he provided incorrect and misleading advice in respect of the settlement in Hayden v. O’Carroll; and that he failed to give an account of all moneys handled by the defendant in respect of the “said actions and transactions”. She also complains that the plaintiff told her she had no option but to follow his advices.
High Court decision on the facts
It is important to record that the learned trial judge held, firstly, that although there was a conflict of evidence in certain aspects there was overall “a good deal of consistency between the respective versions of events”. Insofar as there was a conflict, however, he preferred the evidence of the defendant to that of the plaintiff. He did so for a number of reasons cogently set out in his judgment at pp. 13 ff, and which I do not propose to repeat here. A portion of the plaintiff’s evidence was incapable of being correct and this was demonstrated by documentary evidence and the evidence of other witnesses. Moreover, even on a reading of the transcript, the plaintiff’s evidence emerges as that of a person who is tormented by a sense of injustice and who has subordinated everything, even her own subjective desire to give truthful evidence, to that. Her evidence varied significantly on vital issues. For example she denied she knew she had a half interest in the family home:
“I didn’t know my rights at all I knew nothing. I suppose I stayed in the country minding the house and having the children and I expected my husband to be doing his job and everything was rosy.” When referred to documents, however, and questioned by the judge she admitted that she had known that they both owned the house. Similarly, dealing with land beside the family home, she first said “I didn’t even know a company existed … sure I didn’t even know about a company that my husband had, you know, I knew nothing about them” but very shortly afterwards conceded that she knew that “the field” was owned separately by a company. She professed complete ignorance of legal matters, contracts, charges and the like but she had previously been involved in sales and purchases of property and, in 1982, in the creation of a charge over their family home. Indeed, she “imagined” that she had “organised the legal end” of the acquisition of the land in Ballymore Eustace.
The lynchpin of the plaintiff’s case as it unfolded was that she had never been advised to take independent legal advice before deciding to sign the documents which she did sign on the 14th November, 1988. The learned trial judge accepted the defendant’s account of this which he was able to give with some precision because he had contemporary attendances. The learned trial judge said:-
“I accept the evidence given by the defendant’s two secretaries which was to the effect that Mr. Diamond was meticulous and prompt in keeping attendances. I am satisfied that his attendances in relation to the transactions in issue in these proceedings are a fair and truthful account of the business recorded. I do not accept for one moment that Mr. Diamond fabricated any of these records.”
The last sentence refers to an allegation made in evidence by the plaintiff. She had frequently and strongly stated that she had never been advised to take advice from another solicitor. She made this allegation stridently even though, as she herself agreed after a long cross-examination, her memory was not good. Furthermore, and perhaps understandably, her reaction to the sudden revelation of her husband’s malfeasance which had exposed them to the Haydens’ claim was to go “bananas” and “berserk” and “hysterical” as she variously described it, a reaction which she had never got over. It was, I believe, this latter reaction which led her into making the allegation that Mr. Diamond had fabricated his attendances, a charge for which there was no objective support. At other times, however, she had sufficient insight to say:
“I lost my family home, I had to sell my family home to pay off
my husband’s debts.”
That, indeed, is the sad reality. The failure of her husband to prepare her for that reality until the need to sign legal documents was imminent was an appalling omission on his part. It was not the fault of the plaintiff and it constituted a grievous injustice to her. The difficulties which led to the sale of the family home were not of her making. She has become obsessed by that fact to the point where she seems unable to realise that they were not of Mr. Diamond’s making either.
The principal allegation made by the plaintiff, that Mr. Diamond failed utterly to advise her to take independent legal advice, was stood over this allegation in evidence and the logic of it drove her to make the further allegations that the attendances recording this advice to her were fabricated. In making these grievous and damaging allegations Mrs. O’Carroll, who had been the victim of a grave injustice at the hands of her husband herself inflicted an injustice on Mr. Diamond. It does not appear that the learned trial judge was pressed to accept this fundamental allegation and, of course, on the hearing of this appeal the case proceeded on the basis that Mr. Diamond had indeed advised the plaintiff to take independent advice, and that his attendances accurately reflected what occurred.
Submissions on appeal.
The case for the plaintiff proceeded on the basis that, even assuming the advice to take independent advice to have been given, there was a breach of Mr. Diamond’s duty to Mrs. O’Carroll in other ways. Specifically, it was submitted that he should have done more to get her to take independent advice: at one point it was suggested that he should personally have telephoned another solicitor in Mrs. O’Carroll’s presence and put her on the line, therefore compelling her to say something to the other practitioner. More realistically, it was urged both in the High Court and in this Court that he should himself have advised her as to her rights and options if she did not proceed with the charging and subsequent sale of her interest in the family home. This was the view which eventually found favour with the learned trial judge.
Dealings between plaintiff and defendant.
The account of these dealings which was accepted by the trial judge is succinctly set out in two attendances of the defendant, dated the 14th November, 1988 and the 15th November, 1988, as follows:
“ 14th November, 1988.
Attending Frank O’Carroll when he telephoned me from home. He said that he was now speaking with his wife and that they didn’t know what they were going to do. He asked whether or not I would talk with her. I told him that I felt she should take independent legal advice in connection with protecting her share of the house.
He said that she was very upset about the matter. She then came on the phone and I told her that I felt she should obtain independent legal advice if she was in any doubt in the matter. She said that if she had known about it beforehand that she would have gone to see Mrs. Hayden. I said that I didn’t think this would have done much good as I felt that her Solicitors were advising her and that was not going to discuss any matter directly with the Defendants.
I reiterated to her that she should obtain independent legal advice if there was any problem. I told her however I felt that we had done a very good job in protecting Frank so far and if it had been this time last week, I said that he was getting ready to go to jail for contempt of Court as we would not be in a position to file the necessary Affidavits.
She said that she didn’t know any Solicitors and I said that there were plenty of reputable solicitors around Newbridge & Naas if she wanted to go and see one of those. I said that obviously a Solicitor would not be in a position to adviser her in relation to all matters concerning this case in an hour or so and it would be a matter where we would have to play for time with the other side.
I told her that I had not been aware of the Woodwind matter relating to O’Sullivan & Lawlor and obviously this was another situation we would have to try and resolve at some later stage but in the first instance I felt the only thing to do was to taken one case at a time.
She said that she was very anxious that Mrs. Hayden got her money back and in that regard she wanted to do everything possible to get that.
She said that she would think about the situation and then said that Frank O’Carroll wanted to have another word with me. I finally said to her that if she was in any doubt about anything that she should get independent legal advice and I could not guide her in the matter.
I then spoke with Frank and he said that he had discussed the matter further with his wife and he would then arrange to come up to my office. I said to let me know as soon as his mind was made up and I would go over to see Mr. Danaher now and try and h old matters back for a further period of time.
15th November, 1988.
Attending Mr & Mrs. O’Carroll when they called in. I explained first of all to Mrs O’Carroll the situation as to what was to be signed this morning if she was willing to do so. I said that I couldn’t advise her to sign it or not sign it and it would be totally up to her as she had already indicated that she wanted to try and keep her half of the house. She said that she was quite willing to go along with the situation now that she understood it more so. She said that she knew the house would have to be sold and they had both decided that this was the only course of action open to them. She said that she wanted to go and talk with Mrs. Hayden as she had been a friend of hers and I told her that I didn’t think it would be appropriate to do that until matters had been resolved fully.
I then went through all the forms to be signed and explained what the mortgage would mean and that it was a charge that would come in after the charge in favour of AIB. I said that if there wasn’t enough to meet the amount due to the Haydens out of the proceeds of sale of the house, that the greyhounds would have to be sold as would be 8 acres belonging to Cannamore Enterprises and I explained the terms of the resolution as drafted and they both then read all documentation and were happy enough to sign same. In relation to the matter of the Family Home Protection Act Declarations, they said that they would go to the office in Lombard Street and obtain a copy of the relevant extract and would then arrange for the swearing of both Declarations and return them to me.
I made it very clear that I was not forcing her to sign anything and she said that she understood that and was quite willing to sign all the documentation and said it was the only way that she could protect Frank in the matter.
I then arranged to witness their signatures where applicable and said that the matter was adjourned until next Monday and would hopefully be finally resolved at that stage. I said that I had got them to sign the forms in relation to the Land Registry and the application to get the Land Certificate in case there was any problems on priority.
It is clear from these documents that Mrs. O’Carroll was informed that Mr. Diamond could not advise her as to whether or not to sign the documents in question. He acknowledged that she had already indicated that she wanted to try to keep her interest in the house. She was urged to take independent legal advice and he offered to try to get for her the time necessary to take advice from another solicitor in a meaningful fashion. It is more than probable that he could have done so since, from the Haydens’ point of view, this would have improved the quality of their security. The plaintiff’s recorded statement that she did not know any solicitors is flatly contradicted by her own evidence in which she mentions at least three who had previously acted for her.
The plaintiff’s case as it now stands is based on the assumption of the truth of what was recorded in these attendances, and on the contention that, even on that basis, the defendant did not do enough. It was specifically suggested, in part on the basis of the evidence of Mr. O’Donnell, an expert called on behalf of the defendant, that, having accepted her as a client, Mr. Diamond should have advised her on the merits of the issue as to whether or not she should sign the documentation and that he, in the words of the learned trial judge, “was wrong in withholding advice from Mrs. O’Carroll either separately or jointly with her husband and that his omission on this regard is of such an obvious or even glaring nature as to lead inexorably to a finding that his conduct of this aspect of the transaction is not of a standard which one would have expected from a member of the solicitors profession of his standing, and thus was negligent.”
Relations between the parties
The relations between the plaintiff and the defendant were difficult and marked by obvious potential for conflict, for two quite separate reasons. From a legal point of view, Mr. Diamond was requested to act for two parties, husband and wife, one of whom was going to charge her property for the benefit of the other. In these circumstances it is apposite to recall what was said by Barron J. in Carroll v. Carroll [1999] 4 I.R. 241:
“The final ground upon which the defendant relies is that the donor received independent legal advice from Mr. Joyce. The question of advice by a solicitor was considered in the High Court (Budd J.) in Gregg v. Kidd [1956] I.R. 183. At p. 201 and 202, Budd J. approved certain principles from the judgment of Farwell J. in Powell v. Powell [1900] 1 Ch. 243. These were:
(1) A solicitor who acts for both parties cannot be independent of the donee in fact; and
(2) To satisfy the court that the donor was acting independently of any influence from the donee and with a full appreciation of what he was doing it should be established that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person. Further, the advice must be given with acknowledge of all relevant circumstances and must be such as a competent advisor would give if acting solely in the interests of the donor.
Accepting these principles, there can have been no independent advice given by Mr. Joyce since at best he was acting for both parties.”
A little later Barron J. said:
“As I have said before, a solicitor or other professional person does not fulfil his obligation to his client or patient by simply doing what he has asked or instructed to do. He owes such person a duty to exercise his professional skill and judgment and he does not fulfil that duty by blithely following instructions without stopping to consider whether to do so is appropriate. Having done so, he must then give advice as to whether or not what is required of him is proper. Here his duty was to advise the donor to obtain independent advice.”
In my view, this passage is a clear and concise statement of the law and is fatal to the proposition that the defendant should have advised the plaintiff in relation to the transaction, and “was wrong in withholding advice from [her]”. Indeed, as the learned trial judge at one point said in commenting on portion of the passage cited above:
“That would suggest to me that in a situation of conflict between the plaintiff and Mr. O’Carroll, the one person who could not advise Mrs. O’Carroll was the defendant”.
Carroll v. Carroll of course postdates these events, but it restates legal propositions established since 1900, if not earlier.
I have had the opportunity of considering a very recent English case on Solicitors’ duty, Hilton v. Barker Booth & Eastwood [2005] 1 AER 651. There, a firm of Solicitors acted for two separate persons engaged in a property development. The firm was privy to information about one of those persons (that he had served a prison sentence for a commercial offence) in respect of which they owed him a duty of confidentiality. Accordingly, they did not disclose it to their other client. The House of Lords held that if a solicitor put himself into a position of having two irreconcilable duties, that was his own fault. The solicitor who had conflicting duties to two clients could not prefer one to the other. He had to perform both as best he could and “this may involve performing one duty to the letter of the obligation, and paying compensation for his failure to perform the other. But in any case the fact that he has chosen to put himself in an impossible position does not exonerate him from liability”. I have no doubt that this is correct. I do not, however, believe that Mr. Diamond “chose to put himself in an impossible position”. The impossible position referred to in the Hilton case, and in others back to Moody v. Cox [1917] 2 Ch. 71, is that of accepting instructions from two persons with conflicting interests without disclosing that state of affairs. In Hilton, the solicitors undertook to act for both parties even though they knew there was a relevant piece of information about one which their professional duty to that person precluded them from disclosing to the other. Furthermore, the solicitors had themselves advanced a substantial loan to one of the clients which in practice would only be recoupable if the other client participated in the planned development. Neither of these facts was disclosed.
In the present case Mr. Diamond made it clear not only that the plaintiff should take independent legal advice but that he could not possibly advise her on the vital question of whether to charge and subsequently to sell the family home and other property. On the authority of Carroll v. Carroll, he was absolutely correct in saying this. Does the fact that, having said it, and having received the plaintiff’s instructions that “she was quite willing to go along with the situation now that she understood it more so… she knew the house would have to be sold and they had both decided that this was the only course of action open to them”, he proceeded to explain the necessary documents to her and have her sign them in his office alter his duty? I do not believe that it does, at least in the dramatic and urgent circumstances of this case. In Finlay v. Murtagh [1985] IR 232 at 254, Henchy J. referred to the House of Lords decision in Hedley Byrne v. Heller [1964] AC 465 as follows:
“… Once the circumstances are such that a defendant undertakes to show professional care and skill towards a person who may be expected to rely on such care and skill and who does so rely, then if he has been damnified by such default that person may sue the defendant in the tort of negligence for failure to show such care and skill”.
It appears to me that the defendant’s solicitor here did not undertake to show professional care and skill towards the plaintiff except in the purely ministerial matter of effecting charges and other documents. He made it perfectly clear that in the circumstances of the case he could not discharge the other and broader duties which a solicitor giving her independent advice would discharge i.e. to discuss whether, from her point of view, it was wise, proper, necessary or desirable to sign the relevant documents.
Furthermore, I do not think that, if Mr. Diamond had taken it on himself to advise Mrs. O’Carroll as to the merits of the transaction, and she proceeded with it, such advice would have been effective to uphold the transaction against challenge. The situation which would then arise could certainly have been distinguished from Carroll v. Carroll, where the solicitor did not give any advice at all. But Mr. Diamond would still have been a person who, on criteria established for upwards of a century, could not be independent of Mr. O’Carroll, the person for whose benefit the transaction was to be. Equally, no advice by him could have met the requirement that “the nature and effect of the transaction [be] fully explained to the donor by some independent and qualified person”. Mr. Diamond was of course a qualified person but in the circumstances of the case he could never have been an independent person.
The other aspect of great difficulty confronting both plaintiff and defendant was the extremely fraught and extremely urgent nature of the transaction in contemplation. Because of this it was not remotely comparable to an ordinary charging or conveyancing transaction. There was an immediate threat to the livelihood and earning capacity of Mr. O’Carroll and therefore to the wellbeing of his family. This threat also extended to the destruction of his reputation, which would make it difficult or impossible to generate earnings in any alternative way. His professional standing as an accountant was also under immediate threat. Less immediate, but very real, was the threat of criminal proceedings for fraud. I am satisfied that a complaint of fraud would have been made to the guards if the Haydens’ proceedings were not settled: this appears from the evidence of Mr. Comyn, solicitor. It was indeed agreed on the hearing of this appeal that, by the 14th and 15th of November, 1988, a situation amounting to an immediate crisis existed.
It was in these circumstances that Mrs. O’Carroll simply declined to take independent advice and gave a reason for doing so, that she did not know any solicitors, which was untrue. Despite this, the very acute circumstances prevented the defendant solicitor from taking a number of courses of action which might otherwise have been open. He could not, for example, say that he would not act for either party in the transaction or would not act until she took the advice; he owed a duty to Mr. O’Carroll which he could not then resign. That is why he could not advise the plaintiff. In my view it is utterly impractical to say that he could have forced Mrs. O’Carroll to consult another solicitor in the manner suggested or otherwise. Indeed, it was much to be preferred that Mrs. O’Carroll would consult a solicitor of her own choosing and not of Mr. Diamond’s.
In my view, in these most unusual circumstances, Mr. Diamond took the only steps possible in urging Mrs. O’Carroll to take independent legal advice and in stating emphatically that he could not advise her as to whether or not she should proceed to carry out the proposed transaction. If he had done less, he would not have met the requirements laid down in Carroll v. Carroll. If he had tried to do more his advice would not have been independent and would not have met the Carroll v. Carroll requirements in that respect. He would then, indeed, have “chosen to put himself in an impossible position”.
I wish to stress that my conclusion in this regard is based on a combination of the legal principles set out in Carroll v. Carroll and the very difficult and unusual circumstances of the case. My decision should not be taken as implying that, in other circumstances, a solicitor necessarily discharges his duty merely by urging a person to take independent advice and blandly accepting a decision not to do so. Depending on the circumstances his obligations may be much greater and may include declining to act until such advice is taken. This, indeed, may be a prudent course in the interest of his original client, the person making a disposition or giving a security, and the person for whose benefit any security is given. But each case must be assessed on its own facts. The facts here are unusual and presented an acute dilemma which I believe Mr. Diamond handled as well as any solicitor could in the circumstances.
Evidence of Mr. O’Donnell.
In reaching his conclusion that the defendant should not have withheld advice from the plaintiff, the learned trial judge heard the evidence of the distinguished conveyancing solicitor, Mr. Rory O’Donnell, who was called for the defendant. The judge said:
“In my view the solution to this difficult problem is to be found in the evidence of Mr. O’Donnell. He seemed to be surprisingly unimpressed with the conflict of interest problem. His evidence as I understand it was to the effect that in circumstances where there was clearly no marital disharmony between the plaintiff and Mr. O’Carroll, he appeared to see no difficulty in them being advised together and having all of the options discussed with them both. In that context he acknowledged that the options available to the plaintiff would have to be discussed”.
I wish to make two observations on the evidence of Mr. O’Donnell.
There is no doubt whatever that Mr. O’Donnell is an eminent solicitor, quite correctly credited with great expertise in conveyancing matters. Does that render admissible what is recorded, for example, at page 114 of the Transcript of Evidence given on the 12th February, 2002? There, after a nineteen line statement of assumptions about the facts of the case, the plaintiff’s counsel concluded “If that was the case, what do you think Mr. Diamond’s obligations would be?”
In Midland Bank v. Hett, Stubs and Kemp [1979] Ch. 384 at 402, Oliver J. said, in relation to the evidence of solicitors as to what they would have done in a particular situation:
“I must say that I doubt the value, or even the admissibility, of this sort of evidence, which seems to be becoming customary in cases of this type. The extent of the legal duty in any particular situation must, I think, be a question of law for the Court. Clearly, if there is some practise in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the Court; whilst evidence of the witness’s view of what, as a matter of law, the solicitor’s duty was in the particular circumstances of the case is, I should have thought, inadmissible, for that is the very question which it is the Court’s function to decide”.
In this case, the learned trial judge evinced uneasiness about portions of the evidence of Mr. O’Donnell, precisely because he was being requested to comment on matters of law. The input of the parties on matters of law is to be by submission, and not by evidence. Since the matter was not fully argued in the High Court I would not make any decision of significance on this basis, but would simply note that there appears to me to be a great deal to be said for the comments of Oliver J., cited above. I wish to emphasise that these matters arose on, our out of, cross-examination and were not volunteered by Mr. O’Donnell.
In any event, I am far from convinced that (assuming it to be admissible) a firm and useful statement emerged from Mr. O’Donnell’s cross-examination. I would stress, in fairness to the witness, that his brief direct evidence seems perfectly clear: he said that a solicitor would normally accept the instructions of a client that his, the client’s, wife was prepared to enter into a particular transaction. He said that in the circumstances pertaining on the 14th November, 1988, the husband’s solicitor had a duty to advise the wife that she should get independent advice, and that that seemed to have been done. Asked about the situation which arose when a hypothetical client declined to take legal advice from an independent source he said that if the client had given the instructions recorded in the attendance on the 15th November “In my opinion that would have been the normal thing to do and I would have thought that other than mentioning the independent advice, I don’t believe that a solicitor in that situation, as I understand them, would have sent somebody [away] and said ‘sorry I can’t do that’. Now, there would be circumstances where you would have a duty to do that, but I don’t think in this case”.
He said that such a duty might arise if there was marital disharmony that the solicitor was aware of or if the charge was required to secure borrowings for a frivolous project. He said he believed it was reasonable for the defendant to act in the charging, having advised the plaintiff to take legal advice, though he said “in a perfect world” he would have got her to sign some document acknowledging that she had been advised to take independent advice.
It may be noted that Mr. O’Donnell also said (pp 80/81) that although he had been retained to give independent advice “reasonably regularly” in difficult circumstances, “I don’t think I have ever had a situation, either on any side where, as a result of the independent advice, somebody didn’t do something. The decision, in principle, was to support or not to support and the issue of the problem for the family is the one that is the driving force”. (sic)
By the end of his evidence, Mr. O’Donnell had altered his testimony to this extent (page 116):
“I think that the advice she would have got from an independent person would be the consequences of signing and the consequences of not signing, and I expressed the view that I couldn’t see how the discussion on both days could have actually happened without those issues having been discussed, to some extent. If they had been discussed, I believe it was reasonable for him to act and to get it signed.”
In my view, this passage and others to the same effect illustrate the great difficulty (apart from admissibility) of asking a witness to discuss matters of law without putting the law fully to him. Mr. O’Donnell was at no stage invited to consider the effect of the decision in Carroll v. Carroll and the cases cited there on any hypothetical advice or discussion to which Mr. Diamond, as opposed to another solicitor, was a party. Quite clearly it would have been reasonable for him to have acted as he did in relation to the charging documents if another solicitor had discussed with the plaintiff the consequences of signing them or not signing them. But that does not address the situation where the plaintiff had refused to take independent advice and Mr. Diamond was disqualified as an independent adviser by reason of conflict of interest, and incapable of disembarrassing himself of his obligation to the husband. The learned trial judge thought that Mr. O’Donnell was “surprisingly unimpressed” with this problem. In my view, that is not itself surprising: the learned trial judge had, and Mr. O’Donnell had not, the advantage of having the judgment in Carroll and Carroll and the older cases cited therein opened to him and comprehensive submissions made on them. In my view, there is no basis in law for the suggestion that Mr. Diamond, as opposed to any other solicitor, could or should have “discussed” with Mrs. O’Carroll the consequences of signing or not signing the relevant documents, or in any fashion given her legal advice, as opposed to ministerial legal assistance.
Looking at a transaction with hindsight often suggests standards which are unattainable in practice. However, in the circumstances of this case, even with the benefit of hindsight extending now over a period of seventeen years, I cannot see that Mr. Diamond can be faulted for acting as he did. The plaintiff submitted that Mr. Diamond’s duty as a solicitor “overrode” his statement that he could give no advice. Since, however, the latter statement is correct in law, the submission means that anything he did would be wrong, a classic “Catch 22”, which would be most unjust to a person in Mr. Diamond’s position.
Nor do I think that Mrs. O’Carroll did in fact fault Mr. Diamond for a considerable time after the events of November, 1988. She was, understandably, deeply and lastingly distraught, even grief stricken by the events which had occurred and by the loss of her home. The brutal suddenness with which her husband’s position was revealed to her was an exacerbating factor in this. As I have already said, she was the victim of great injustice at the hands of her husband. Her position, already miserable, was worsened in following years by the fact that both she and her husband were afflicted by serious ill health and by the breakdown of their marriage, and separation in more recent times.
But the plaintiff does not appear to have identified Mr. Diamond as the person responsible for her misfortunes until a time approaching six years after the events of November, 1988, in November, 1994. This is so although events subsequent to November 1998 unrolled slowly: it was about nine months before she was asked to sign the contract for sale and there was then a long delay in completing the sale during the course of which there were specific performance proceedings by the O’Carrolls against the purchasers. In all there was up to four years to reflect on what had occurred in a calmer situation than was possible on the14th and 15th November, 1988, before the sale closed. But no proceedings were issued until four days before the sixth anniversary of these events.
The plaintiff, as she herself said at one point in her evidence “had to sell [her] family home to pay off [her] husband’s debts”. This was a tragedy for her and it has unfortunately blighted her life, to judge by the tone and content of her evidence. But it resulted from the peculations of her husband and the immediate threat to the livelihood of himself and his family to which those misdeeds exposed him. The fact that the plaintiff was denied knowledge of that situation until the last possible moment was another tragedy for her and presented Mr. Diamond with an acute professional dilemma. But nothing he did was the cause of the tragedy which overwhelmed the plaintiff. I believe he acted properly in the very difficult circumstances in which he found himself and that he cannot be found negligent in acting as he did. I also agree with the judgment that Kearns J. is about to deliver and with his conclusion that no other course of action on the part of the defendant would, in the circumstances, have avoided the results of which the plaintiff complains.
Conclusion
For these reasons, which are somewhat different from those of the learned trial judge, I would affirm his order dismissing the plaintiff’s claim. Firstly, the defendant was not negligent, in breach of duty or in breach of contract; secondly, nothing the defendant did was the cause of the plaintiff’s misfortunes, and nothing he could have done would have avoided them.
Dunne (an inf.) v. National Maternity Hospital
[1989] IR 91 Supreme Court
Finlay C.J.
These are two appeals brought by the defendants against a judgment and order of the High Court dated the 2nd August, 1988, whereby after a trial held by a judge with a jury the plaintiff was awarded the sum of £1,039,334 damages for negligence against the two defendants. The plaintiff’s claim is that whilst in his mother’s womb he suffered extensive brain injury due to the negligence of the first defendant (“the hospital”) its servants and agents in the management of his mother’s labour and of his birth, and also by reason of the negligence of the second defendant (“the doctor”) who was the consultant obstetrician attending his mother in respect of her labour and his birth.
The facts
The facts out of which this claim arose may thus be briefly summarised. The plaintiff was born on the 20th March, 1982, and is the second child of Mr. and Mrs. William Dunne who reside in Bray, County Wicklow. In respect of the birth of her first child, who is approximately two years older than the plaintiff, Mrs. Dunne attended the doctor as her personal consultant obstetrician. Her child was born
in the hospital and her pregnancy and labour preceding that birth were normal and without any incident. On becoming again pregnant Mrs. Dunne again consulted the doctor and was accepted by him as a personal patient. She made arrangements that the child should be born in the hospital. She attended the doctor on a number of occasions during the period of her pregnancy and by arrangement with him also attended a local general practitioner, Dr. Byrne, who practised in Bray.
On the 10th March, 1982, upon attending the doctor on one of her regular visits, she asked him to consider as to whether her pregnancy might be a twin pregnancy. The doctor carried out a scan examination of Mrs. Dunne and as a result was satisfied that she was in fact pregnant of twins; that both were of equal size and in apparent good health; that the first or leading twin was presenting for a normal vertex delivery and that the second twin was presenting for a breach delivery. Mrs. Dunne had remained healthy and well, without complications, during the entire of her pregnancy.
On the morning of the 20th March, 1982, which was a Saturday, and was two weeks earlier than the expected full term date for the birth of the twins, namely, the 3rd April, Mrs. Dunne, having experienced some pains during the night, attended Dr. Byrne at about 9 a.m. He examined her and informed her that she was two or three centimetres dilatated and that she was in labour, and he advised her to go straight away to the hospital. He expressed the view that her children might be born around lunchtime. On receiving that advice Mrs. Dunne rang the doctor, told him that she was in labour, had been to Dr. Byrne and that he had said she was two or three centimetres dilatated. She informed the doctor that she was going ahead to the hospital and her evidence was that he said: “Come ahead, I will be waiting for you.” Mrs. Dunne was then driven by her husband from Bray to the hospital and arrived there at approximately half past ten. She was admitted to the labour ward at 11.15 a.m. and examined by the sister-in-charge who measured the extent of her dilatation as two centimetres. The doctor was not in the hospital at the time of the arrival of Mrs. Dunne, though he had been there earlier seeing patients. At approximately 11.30 a.m. he phoned the hospital to see if Mrs. Dunne had arrived, and on being informed that she had and had been admitted to the labour ward, he asked to be phoned after her membranes had been punctured by the doctor who carried out that function in the hospital. At 12.10 p.m. the doctor was informed by the sister in charge of the labour ward that the doctor concerned had punctured the membranes and that grade 1 meconium had been found. He was also informed that upon auscultation a foetal heart had been found and that the dilatation was three centimetres. The doctor was aware on receiving that information that it was the practice of the hospital in the case of a known twin pregnancy to seek to identify one foetal heart only and did not direct any alteration in that practice. The plaintiff gave evidence that at approximately 1.40 p.m. she experienced tumultuous foetal movements which lasted for about fifteen minutes. She asked the nurse attending her to inform the doctor of this fact and to ask him to come to see her. At about 2 p.m. the sister-in-charge phoned the doctor and informed him that progress in the labour was very slow and that the dilatation of the cervix remained at three centimetres. The doctor then directed that the plaintiff should be asked to walk up and down the corridor so as to expedite the labour. This was then done between 2 p.m. and 4 p.m. At approximately 4 p.m. the sister-in-charge phoned the doctor and informed him that despite the walking and the further time which had elapsed no further progress with regard to dilatation had been made, and the doctor directed that Mrs. Dunne should then be put on an oxytocin drip and requested that the assistant master who was in attendance at the hospital should examine her.
At 4.15 p.m. Mrs. Dunne was put on to an oxytocin drip and was examined by the assistant master at 4.20 p.m. He found that the dilatation of the cervix had progressed to five centimetres; that there was poor progress in the labour; that the membranes had apparently resealed and he again punctured the membranes, finding a grade 2 meconium deposit. He stopped the oxytocin which accordingly had only been on for five minutes. He carried out a foetal blood test on the scalp of the infant plaintiff, who was the leading twin, and it had a pH of 7.31, which would be normal. He then attached to the scalp of the plaintiff a continuous electronic monitor. At 5.08 p.m. the doctor was informed by telephone that the position of Mrs. Dunne was that the cervix was fully dilatated and that she was proceeding to deliver the first twin.
At 5.15 p.m. the infant plaintiff was born naturally and within minutes afterwards the doctor arrived in the hospital. At 5.30 p.m. the second twin was born dead and bore signs of maceration on the anterior abdominal wall. On birth, the plaintiff was incubated, having difficulty with breathing, and grade 3 meconium was suctioned from his trachea. He was in some distress and was transferred to the intensive care unit. Over the next few days he displayed signs of severe brain damage, including convulsions, cycling movement of the limbs and rolling of the eyes. The brain damage with which he was born is irreversible and he is now a spastic quadraplaegic with major mental handicap.
The trial and verdict
The trial lasted for fifteen days between the 5th and 25th July, 1988, and evidence was given on behalf of the plaintiff and on behalf of each of the defendants which included a great number of expert medical witnesses. All the hospital reports and documentation concerning the birth of the plaintiff were made available and were freely quoted and referred to in the course of the trial. At the conclusion of all the evidence the defendants each applied for a non-suit and the learned trial judge, having refused those applications, after discussion, left to the jury a series of questions which were answered and which led to the verdict and judgment to which I have referred. It is necessary for the purpose of understanding the issues arising in this appeal to set out those questions, though they are lengthy, in full, together with the answers delivered to them by the jury. The questions are as follows:
1. Did the plaintiff suffer brain damage as a result of lack of oxygen occurring over some hours during labour and whilst in hospital on the 20th March, 1982?
Answer: Yes
If the answer to Question 1 is yes answer the following questions:
2.(a) Should the authorities in the defendant hospital have instructed its nursing staff to attempt to identify the presence of two foetal hearts in the case of known twin pregnancy (a) on admission of the plaintiff’s mother to their hospital; and
Answer: Yes
(b) Should the authorities in the defendant hospital have instructed its nursing staff to inform Dr. Jackson of an inability to identify the presence of two foetal hearts
(a) on admission; or
Answer: Yes
(b) during labour if it was not possible to identify the presence of two foetal hearts?
Answer: Yes
3. Should the sister in charge have informed Dr. Jackson at 2 p.m. not only that labour was slow but also (a) that excessive foetal movements had occurred?
Answer: Yes
and (b) that Mrs. Dunne had requested his presence and have recommended his presence at the hospital?
Answer: Yes
4.(a)(i) Should Dr. Jackson have examined the plaintiff’s mother on her admission to hospital and whilst doing so have attempted to identify the presence of two foetal hearts?
Answer: No
Alternatively,
(ii) Should Dr. Jackson prior to the admission of the plaintiff’s mother have ensured that the nursing staff was instructed to attempt to identify the presence of two foetal hearts
(a) on her admission?
Answer: Yes
(b) and regularly during labour and to inform him if the identity of a second foetal heart could not be ascertained?
Answer: Yes
(b) If Dr. Jackson himself had failed to identify the presence of a second foetal heart or had been informed that it was not possible to identify the presence of two foetal hearts should he have carried out an ultrasonic scan?
Answer: Yes
(c) If the answer to (b) is yes would he have ascertained either at the time of Mrs. Dunne’s admission or sometime during labour and prior to 1.30 p.m. that twin number two had died?
Answer: Yes
(d) If the answer to (c) is yes should he then have electronically monitored William’s heart by means of a clip attached to his head?
Answer: Yes
(e) If the answer to (d) is yes should he have ascertained that William was suffering from serious foetal distress some time prior to 1.30 p.m.?
Answer: Yes
(f) If the answer to (e) is yes should he have delivered William by caesarian section prior to 1.30 p.m.?
Answer: Yes
5.(a) Having been informed at about 12.10 p.m. on 20th March, 1982, of the presence of meconium grade 1 should he have attended to the plaintiff’s mother in hospital, examined her and attempted to identify the presence of two foetal hearts?
Answer: Yes
(b) If (a) is yes and if he had failed to identify the presence of a second foetal heart should he have carried out an ultrasonic scan?
Answer: Yes
(c) If (b) is yes, would he have ascertained that twin number two was dead?
Answer: Yes
(d) If (c) is yes, should he then have electronically monitored William’s heart by means of a clip attached to his head?
Answer: Yes
(e) If (d) is yes would he have ascertained that William was suffering from serious foetal distress at that time?
Answer: Yes
(f) If (e) is yes should he have delivered William by caesarean section?
Answer: Yes
6.(a) If Dr. Jackson should have delivered William by caesarean section prior to 1.30 p.m. would William’s brain damage have been avoided?
Answer: Yes
(b) If Dr. Jackson should have delivered William prior to approximately 2 p.m. would William’s brain damage have been avoided?
Answer: Yes
7. Assess damages under the following headings:
(a) Cost of nursing care to age sixteen:
Answer: £132,561
(b) Cost of housekeeper to age sixteen as aid to mother:
Answer: £Nil
(c) Provision of accommodation for plaintiff up to age sixteen:
Answer: £50,000
(d) Cost of residential care for life from age sixteen:
Answer: £351,850
(e) Cost of special food, disposable nappies, doctors’ fees, hoists etc.:
Answer: £25,923
(Agreed)
(f) Loss of earnings:
Answer: £12,000
(g) General damages for pain and suffering and loss of amenities:
Answer: £467,000
Total: £1,039,334
Grounds of appeal
Each defendant appealed both against the finding of liability made and against the assessment of damages. The hospital submitted 33 grounds of appeal, and the doctor submitted 33 grounds of appeal. These grounds of appeal, many though not all of which were similar, fell into certain broad categories and almost all of the 66 grounds thus submitted were fully argued before this Court. As a result of the submissions made on behalf of the two defendants and the replies thereto made on behalf of the plaintiff it is possible to identify in a general way the major issues with which this appeal dealt. They are as follows:
1. Was there evidence to support the finding by the jury in answer to question 1 to the effect that the plaintiff suffered brain damage as a result of lack of oxygen occurring over some hours during labour?
2. Was there evidence to support the finding involved in the answer by the jury to question no. 6 that the damaging brain injury was not suffered by the plaintiff until after either 1.30 p.m. or 2 p.m.?
3. Was there evidence to support the finding by the jury in answer to questions 4 (e) and 5 (e) that if the doctor had attached an electronic monitor to the foetus before 1.30 p.m. and before 2.10 p.m. respectively that he would have discovered that the plaintiff was suffering from serious foetal distress at those times?
4. Could the jury on the evidence, if properly directed as to the legal principles applicable, have made a finding of negligence arising from failure to attempt to identify a second foetal heart against
(a) the hospital?
(b) the doctor?
5. Are the defendants or either of them entitled to an order for a new trial on any one of the following issues, or any combination of them?
(a) The prejudicial effect of the references to a rugby match and the cross-examination of the doctor concerning the administration of oxytocin.
(b) The ruling excluding the evidence of Professor O’Donoghue with regard to the question of brain swelling based on examination of the charts.
(c) The failure of the learned trial judge to include a reference to placental malfunction in question no. 1.
(d) The absence of references to negligence in questions 2, 3, 4 and 5.
(e) Objections to the charge based on the following:
(i) A submission that it was imbalanced as between the plaintiff and the defendants.
(ii) That it lacked sufficient guidance as to the detailed evidence tendered on either side, having regard to the length and nature of the trial.
(iii) By reason of the failure of the learned trial judge in his charge to the jury and, upon requisition, by way of further charge to the jury to give to them the appropriate directions as to the legal principles applicable to the question of negligence against both the hospital and the doctor arising from failure to seek to identify by auscultation two foetal hearts, having particular regard to the decision of this Court in O’Donovan v. Cork County Council [1967] I.R. 173.
6. In relation to damages the sums put in issue as being excessive were as follows:
(a) The cost of nursing care to the age of 16 in the sum of £132,561.
(b) The provision of accommodation for the plaintiff up to the age of 16 assessed at £50,000.
(c) The cost of residential care for life from age 16 assessed at £351,850.
(d) General damages for pain and suffering and loss of amenities assessed in the sum of £467,000.
I am satisfied that the issues thus raised by the grounds of appeal fall into separate categories. The first three issues are exclusively concerned with an examination as to whether there was evidence to support the findings of the jury referred to in those issues. Questions of law were raised on the argument before us concerning the approach of this Court to that issue and, in general, upon the question of what were described as perverse verdicts. If the defendants or either of them succeed on any one of these three issues they would be entitled to a dismiss from this Court of the plaintiff’s claim. With regard to paragraph 4 a question of law arose on the argument before us as to the proper meaning and interpretation of the decision of this Court in O’Donovan v. Cork County Council [1967] I.R. 173, and in particular, to the question of the appropriate directions which a court must give to a jury or, in the case of a trial by a judge alone, must follow, where questions of medical practice arise. In respect of the issues hereinbefore set out at paragraph 5, if either of the defendants should succeed on one or more of those issues, the remedy which could be obtained would be an allowance of the appeal and an order for a retrial.
The law
Findings of the jury
Two alternative submissions were made by the defendants. The first was that the challenged findings of fact were not supported by evidence and that the
rned trial judge erred in law in leaving the several questions of fact leading to these findings for the determination of the jury. The second was that even if there was evidence capable of being left to the jury on the issues involved, the contrary evidence adduced by the defendants was so overwhelming that the findings of the jury must be deemed perverse and unreasonable and should be set aside. In support of the second proposition reliance was placed on the decision of the former Supreme Court in McGreene v. Hibernian Taxi Co. [1931] I.R. 319. The jurisdiction of this Court on appeal with regard to findings of fact made in the High Court is fully stated in its decision in Northern Bank Finance v. Charlton [1979] I.R. 149. In that case O’Higgins C.J. in the course of his judgment, at p. 180, stated as follows:
“A judge’s findings of fact can and will be reviewed on appeal. Such findings will be subjected to the normal tests as to whether they are supported by the evidence given at the trial. If such findings are firmly based on the sworn testimony of witnesses seen and heard and accepted by the judge, then the court of appeal, recognising this to be the area of credibility, will not interfere.”
Henchy J. dealing with the same question in his judgment, at p. 191, stated as follows:
“In a civil case such as this where a tribunal of fact, be it a judge or a jury, has decided a question of specific fact and the resolution of the question depended wholly or in substantial measure on the choice of one version of controverted oral testimony as against another, a court of appeal which is dependent on a written record of the oral evidence given at the trial will not normally reject that finding merely because an alternative version of the oral testimony seems more acceptable. The court of appeal will only set aside a finding of fact based on one version of the evidence when, on taking a conspectus of the evidence as a whole, oral and otherwise, it appears to the court that, notwithstanding the advantages which the tribunal of fact had in seeing and hearing the witnesses, the version of the evidence which was acted on could not reasonably be correct. For example, if the question of fact was whether a defendant was driving on his correct side of the road at the time of a collision and, out of a welter of conflicting oral testimony on the point, the judge (or the jury, as the case may be) expressly or by implication accepted the defendant’s version to the effect that his vehicle was on its correct side of the road at the time of the collision, then in that event a court of appeal will normally hold itself to be debarred from rejecting that finding of fact on the ground that its fact-finding capacity in relation to conflicting oral testimony cannot be equated with that of the trial judge (or jury) who heard and saw the witnesses. If, however, on a review of all the evidence, it appears from uncontroverted evidence as to tyre marks or glass or mud on the road that the defendant’s evidence (that his vehicle was on its correct side of the road) could not be correct, the court of appeal will feel free to reject the finding of fact to that effect.”
In the instant case the challenged findings of fact all concern brain damage suffered by the infant plaintiff whilst he was in the womb of his mother,
and relate to the timing and cause of such damage and to his probable foetal condition before and after the suffering of the actual injury. As such, they were facts incapable of being established by direct evidence of actual observation. Instead they necessarily fell to be proved by inferences drawn from, or analyses made of, diagnostic signs recorded before, during and after the birth of the plaintiff. Such inferences and analyses (quite unlike, for example, the position of a vehicle on the road inferred from the marks left by it) cannot be drawn or made by a layman, except by the acceptance by him of expert medical evidence sworn before him as to the conclusions to be drawn from the diagnostic signs. The task of this Court, therefore, on the issue raised by this submission is to ascertain whether the expert medical evidence adduced on behalf of the plaintiff is capable of supporting the challenged findings. The Court must, in arriving at that decision, presume that, in every instance where conflicting credible scientific or medical opinion has been expressed, the jury accepted that version which favoured the plaintiff’s case. This Court as a court of appeal cannot and must not reach a conclusion or express a view as to which of two conflicting expert opinions it (the Court) would prefer.
With regard to the alternative submission, I have come to the following conclusions. If in a trial in a civil case had with a jury the evidence on any particular fact adduced by one of the parties, having regard to other uncontroverted evidence, is incapable of being believed, even though sworn to, it is as a matter of law the duty of the judge to withdraw from the jury that particular issue of fact or to direct the manner in which the jury must answer it. Having regard to that proposition, I can see no logic in a contention that an issue of fact could properlybe left by a trial judge to the determination of a jury and then in the event of the jury deciding it in one particular way, their verdict could be set aside by an appellate court which was satisfied that it was proper to have left that issue.
In so far as the judgments of the former Supreme Court in McGreene v. Hibernian Taxi Co. [1931] I.R. 319 can be interpreted as meaning that in Ireland the appellate jurisdiction of the Supreme Court from the High Court includes a jurisdiction to set aside a jury’s finding on fact on the grounds that it was against a predominant weight of evidence, even though it could not be said to be a finding which a reasonable jury could not make, I must decline to follow it. The sole test, in my view, is whether, in accordance with the principles I have outlined, the learned trial judge was correct in law in leaving the challenged issues of fact to the jury.
Medical negligence
The courts have consistently recognised certain features in the general law of negligence which have particular reference to allegations of negligence made against professional persons in the carrying out of their professional duties. These particular features applicable to allegations of medical negligence have been fully
set out by this Court in O’Donovan v. Cork County Council [1967] I.R. 173, which adopted and followed the decision of the former Supreme Court in Daniels v. Heskin [1954] I.R. 73. The reasoning of O’Donovan v. Cork County Council was expressly followed by this Court in Reeves v. Carthy & O’Kelly [1984] I.R. 348. It was again approved and applied to a case of professional negligence by a solicitor in Roche v. Peilow [1985] I.R. 232. There was no argument submitted to us on the hearing of this appeal which constituted any form of challenge to the correctness of the statements of principle thus laid down, although there was controversy concerning their application to the facts of this case. The principles thus laid down related to the issues raised in this case can in this manner be summarised.
1. The true test for establishing negligence in diagnosis or treatment on the part of a medical practitioner is whether he has been proved to be guilty of such failure as no medical practitioner of equal specialist or general status and skill would be guilty of if acting with ordinary care.
2. If the allegation of negligence against a medical practitioner is based on proof that he deviated from a general and approved practice, that will not establish negligence unless it is also proved that the course he did take was one which no medical practitioner of like specialisation and skill would have followed had he been taking the ordinary care required from a person of his qualifications.
3. If a medical practitioner charged with negligence defends his conduct by establishing that he followed a practice which was general, and which was approved of by his colleagues of similar specialisation and skill, he cannot escape liability if in reply the plaintiff establishes that such practice has inherent defects which ought to be obvious to any person giving the matter due consideration.
4. An honest difference of opinion between doctors as to which is the better of two ways of treating a patient does not provide any ground for leaving a question to the jury as to whether a person who has followed one course rather than the other has been negligent.
5. It is not for a jury (or for a judge) to decide which of two alternative courses of treatment is in their (or his) opinion preferable, but their (or his) function is merely to decide whether the course of treatment followed, on the evidence, complied with the careful conduct of a medical practitioner of like specialisation and skill to that professed by the defendant.
6. If there is an issue of fact, the determination of which is necessary for the decision as to whether a particular medical practice is or is not general and approved within the meaning of these principles, that issue must in a trial held with a jury be left to the determination of the jury.
In order to make these general principles readily applicable to the facts of this case, with which I will later be dealing, it is necessary to state further conclusions not expressly referred to in the cases above mentioned. These are:
(a) “General and approved practice” need not be universal but must be approved of and adhered to by a substantial number of reputable practitioners holding the relevant specialist or general qualifications.
(b) Though treatment only is referred to in some of these statements of principle, they must apply in identical fashion to questions of diagnosis.
(c) In an action against a hospital, where allegations are made of negligence against the medical administrators on the basis of a claim that practices and procedures laid down by them for the carrying out of treatment or diagnosis by medical or nursing staff were defective, their conduct is to be tested in accordance with the legal principles which would apply if they had personally carried out such treatment or diagnosis in accordance with such practice or procedure.
In order fully to understand these principles and their application to any particular set of facts, it is, I believe, helpful to set out certain broad parameters which would appear to underline their establishment. The development of medical science and the supreme importance of that development to humanity makes it particularly undesirable and inconsistent with the common good that doctors should be obliged to carry out their professional duties under frequent threat of unsustainable legal claims. The complete dependence of patients on the skill and care of their medical attendants and the gravity from their point of view of a failure in such care, makes it undesirable and unjustifiable to accept as a matter of law a lax or permissive standard of care for the purpose of assessing what is and is not medical negligence. In developing the legal principles outlined and in applying them to the facts of each individual case, the courts must constantly seek to give equal regard to both of these considerations.
Issue No. 1
This issue arises from the finding made by the jury in answer to question no. 1 on the issue paper concerning the timing of the brain damage. The evidence for the plaintiff on this issue largely, though not exclusively, consisted of the evidence of Dr. Evans, who is a consultant paediatrician with a major involvement in the care of the new-born, and of Dr. Rosenbloom, a paediatric neurologist. To a lesser extent on this particular issue was the evidence of Dr. Barson, a paediatric pathologist, also called on behalf of the plaintiff. Dr. Bender, an obstetrician, also called on behalf of the plaintiff, who dealt in evidence with the management of the labour preceding the plaintiff’s birth did not deal with this question.
Dr. Evans’ opinion may be very briefly summarised as being as follows. The hospital entries constituted a typical record of a baby who had brain swelling caused by a lack of oxygen before birth. The fact that the baby was desperately ill for some two or three days and then got better was typical of babies who are deprived of oxygen during a period of hours, usually during labour. The brain injury was too severe to be consistent with deprivation of oxygen for a very short period and the brain swelling was too obvious in the symptoms after birth to be consistent with a deprivation of oxygen of long duration. Asked in cross-examination about a theory to be adduced by witnesses for the defendants, that the brain damage was sustained by the plaintiff twelve to 24 hours before birth and, therefore, well before his mother entered the hospital, and was caused by an
acute large transfusion of blood from the plaintiff to his twin, which had the effect of killing the twin and damaging the brain of the plaintiff, Dr. Evans said that in his opinion this could not have occurred without damage being apparent on birth to the other organs, such as kidneys and intestines, all of which on the records were normal. It was part of Dr. Evans’ opinion that the deprivation of oxygen to the foetus would have occurred as a result of a malfunction of the placenta caused by contractions of the womb, and that accordingly the brain injury was more likely to have occurred as labour intensified. He also expressed the opinion that such injury occurring during labour would have been preceded by foetal distress.
Dr. Rosenbloom expressed the view that the plaintiff suffered severe brain damage during his mother’s labour. He relied upon findings of grade 1 meconium at 12.10 p.m. and grade 2 meconium at 4.20 p.m. as indicative of increasing foetal distress leading up to brain damage occurring “some hours before the baby’s birth.” His view was based very largely on the condition of the plaintiff at, and for some days after, birth together with what he believes to have been evidence of brain swelling shortly after birth. He too rejected the theory of a possible large twin to twin blood transfusion killing the second twin and damaging the brain of the plaintiff some twelve to twenty-four hours before birth and gave reasons for his rejection.
These witnesses relied in support of their opinions on what they asserted was the not unusual nature of the experience of injury, including brain damage, to one twin during labour, when the second twin has died in the womb, and to what they stated was the extreme rarity of brain damage and death caused by an acute and large twin to twin transfusion of blood. It would appear that of all the experts called in evidence none had direct personal experience or observation of this last mentioned phenomenon, notwithstanding extensive periods of practice as obstetricians or paediatricians.
Against this evidence the defendants called six consultant obstetricians, that is to say, Professor O’Herlihy; Dr. Boylan; Dr. Gordon; Dame Barnes; Professor O’Driscoll; and the second defendant. In addition they called a consultant neo-natologist, Dr. Matthews; a consultant neuro-natologist, Dr. O’Gorman; a paediatric neurologist, Professor O’Donoghue; and a consultant pathologist, Dr. Royston, who was, at the time of the plaintiff’s birth, the registrar of paediatric pathology in the hospital, and who took part in the autopsy carried out on the dead twin. Very briefly summarised indeed, their evidence was of opinions very largely corresponding one with the other to the following effect:
1. That the second twin had died at least twelve and, much more probably, 24 hours before its birth and thus long before the plaintiff’s mother entered the hospital. To establish this, major though not exclusive reliance was placed on the macerated condition of the second twin at birth.
2. The most probable cause of the death of the second twin was a massive twin to twin transfusion of blood from the plaintiff by reason of which the plaintiff suffered deprivation of oxygen and brain damage and that this would have occurred either directly coincidentally with or within a very short time
of the death of the second twin. For this the defendants’ witnesses relied upon a great number of diagnostic signs occurring during labour and after the birth of the plaintiff. Chief amongst these were: (a) Normal foetal heart findings on intermittent auscultation during labour, up to about 4.20 p.m., and thereafter on continuous electronic monitoring of the foetal heart. (b) Normal pH blood sample taken at 4.20 p.m. (c) Normal cord pH blood sample taken at birth. (d) Abnormal haemoglobin down to 50% of normal allied to a normal blood pressure both when taken at birth. (e) Excessive (25%) quantity of normoblasts on blood testing at birth. (f) The absence of other causes of death and an observation of an unusually large quantity of blood in the second twin on the autopsy. (g) The absence of any history of haemorrhage into the mother’s womb and the exclusion by test of haemorrhage into the mother’s circulation.
The defendants’ expert witnesses not only relied on these and other diagnostic signs as suggesting that their theory was correct, but strongly contended that many of them were flatly inconsistent with the plaintiff’s evidence that the brain injury occurred during the plaintiff’s mother’s labour. There can be no doubt that this evidence constituted the opinion of a large number of highly-qualified experts, and, if accepted by the jury in whole or indeed in part, would inevitably have led to the determination of the first question left to them against the plaintiff. I am quite satisfied that having regard to the principles already set out in this judgment it is not of a nature which would permit an appellate court to decide that it nullified the evidence adduced on behalf of the plaintiff. It follows that there was evidence to support the finding of the jury in favour of the plaintiff on question no. 1.
Issues Nos. 2 and 3
These two issues arise from the jury’s findings in answer to question no. 6 and questions nos. 4 (e) and 5 (e) on the issue paper. Whilst not directly linked, these findings are sufficiently related to make it convenient to deal with them in the same part of this judgment. Firstly, the question as to whether there was evidence to support any or all of these findings must be approached in the knowledge that the jury has indicated by its answer to question no. 1 on the issue paper that it has accepted the opinions of the expert witnesses called on behalf of the plaintiff in preference to the opinions of the expert witnesses called on behalf of the defendants, in what clearly was one of the major clashes of expert evidence in this case. As I have already indicated, the evidence of Dr. Evans and Dr. Rosenbloom was to the effect that when it occurred in labour, deprivation of oxygen causing brain injury was linked to the strength of the contractures of the womb and therefore was more likely to occur as labour intensified and in effect towards the end of labour rather than towards the beginning of labour.
On the evidence, the practice of the hospital was to assume for the purpose of records and, apparently, also of diagnosis, that labour only commenced when a
mother was admitted into the labour ward. The reason stated for the adoption of this practice was a frequent experience of mothers believing and stating that they were in labour when they entered the hospital, and eventually proving not to have been so. The jury had before them in this case, however, express evidence from Mrs. Dunne that she was in labour from 9 a.m., and direct evidence from her general practitioner, Dr. Byrne, confirming this, and giving evidence of an examination by him and of a dilatation of the cervix found on that examination of between two and three centimetres. If they had accepted this evidence, and I must assume that they did since it would, to an extent, favour the plaintiff’s case, then Mrs. Dunne’s total labour eventually lasted just over eight hours before the birth of the plaintiff.
On the evidence, in the first four to five hours of that labour, that is to say, up to 1 p.m. to 2 p.m., the dilatation of the cervix increased by only one centimetre from two to three centimetres, whereas in the remaining three and a half hours of labour it proceeded another seven centimetres to full dilatation. On this evidence it was, in my view, open to the jury to accept the view put forward by the witnesses called on behalf of the plaintiff, that the intense period of labour was after 1.30 or 2 p.m., and that it was after that time that the brain injury sustained by the plaintiff occurred and they were entitled to accept that evidence notwithstanding evidence adduced on behalf of the defendants to the contrary. The witnesses for the plaintiff point to the existence of meconium grade 1 at 12.10 p.m. and its progress to meconium grade 2 by 4.20 p.m. as corroborative of increasing foetal distress preceding the actual brain injury which they contend occurred after 1.30 or 2 p.m. For reasons set out in particular in the evidence of Dr. Rosenbloom, it is asserted that such distress might not be detected by intermittent auscultation at fifteen minute intervals, whereas it would have been revealed by continuous electronic scalp monitoring. Furthermore, the evidence of both Dr. Evans and Dr. Rosenbloom concerning the general nature of brain injury caused by deprivation of oxygen during labour is that it is not a sudden injury but is usually preceded by a period of foetal distress eventually increasing to the level of being harmful. All this evidence was again strongly disputed by evidence on behalf of the defendants, but it remained evidence fit and proper, in my view, to be left to the jury, and their acceptance of it cannot, in my view, be set aside by an appellate court.
Issue No. 4
Monitoring of foetal hearts in twin pregnancies
The second central issue which arose at the trial, in addition to the question as to the timing and cause of the plaintiff’s brain damage, was the question as to whether in the case of known twin pregnancy without apparent complications it was correct during labour to attempt to identify the presence of two foetal hearts or only of one. The evidence adduced on either side in regard to this question may
briefly be summarised as follows. Dr. Bender gave evidence that it was not difficult in the case of a twin pregnancy to identify two foetal hearts. His belief was that it was now universally done with a piece of sonic equipment which was in common use for the last ten years. He stated that it could also be done by auscultation carried out by trumpet (which was the method of auscultation used for Mrs. Dunne up to 4.20 p.m.). He expressed the view that such identification was very important in a twin pregnancy and that there were risks in failing to carry it out. Dr. Evans stated that the practice of the hospital in the case of a known twin pregnancy not to seek to identify two foetal hearts was one of which he had never heard being adopted anywhere else. He said it was clearly in his opinion wrong, and he stated that to look for two foetal hearts was something basic, which he compared to putting on the lights of a vehicle when it became dark. He expressed the opinion that to seek to identify one only was absurd.
On behalf of the defendants it was stated as follows. Dr. Casey proved that the policy of the hospital was to listen to one foetal heart in a twin pregnancy. Professor O’Herlihy confirmed that this was and remained at the time of the trial the practice in the hospital. He explained the reason for it as the technical difficulties associated with trying to identify two foetal hearts and the great difficulty of distinguishing one from the other. He also stated that it was somewhat uncomfortable for the mother. He stated that he was aware of a similar practice in use in other hospitals in which he worked, identifying one instance as St. James’s University Hospital in Leeds, where he worked as a registrar from 1977 to 1978. Dr. Blennerhasset, who was a junior doctor in the hospital at the relevant time, confirmed the practice and stated that now practising as a general practitioner, he would in the case of a known twin pregnancy seek to identify one foetal heart only, though his practice did not apparently include the management of labour. Dr. Gordon stated that, in his opinion, seeking to identify two foetal hearts was notoriously unreliable, might be misleading, and might influence an obstetrician in reaching decisions quite incorrectly. He gave an example of a hospital with which he is associated where, two foetal hearts having been identified and traces of their movement obtained, and which appeared to prove very satisfactorily that each was operating normally, upon eventual birth it was discovered that one of the twins concerned had been dead for a very considerable time. Evidence of this happening elsewhere was given by other witnesses on behalf of the defendants. Dame Barnes stated that she saw nothing wrong in attempting to identify one foetal heart only, and although it might be desirable to attempt to identify two, it did not necessarily reveal the existence of a dead twin. Dr. Matthews gave evidence that it was the practice to attempt to identify two foetal hearts in both the Rotunda Hospital, to which he is attached, and in the Coombe Hospital. He expressed an opinion that such practice did not appear to him to be any better or of any advantage over the practice adopted in the defendant hospital of only attempting to identify one. He relied for this conclusion in part, at least, upon survey reports from the Rotunda Hospital and from the defendant hospital, covering a significant period, indicating similar experience and results from twin pregnancies. The second defendant, Dr. Jackson, confirmed the practice of the
hospital and indicated his acceptance of it in any case where he had no grounds for concern about the second twin which he stated was the position in this case. Dr. O’Driscoll, who is a former master of the hospital, and a former professor of obstetrics and gynaecology in University College Dublin, and who has been associated with the hospital for forty years, gave evidence that the practice of seeking to identify one foetal heart only in the case of twin pregnancies had been the practice of the hospital for certainly fifteen to twenty years at the time of the trial. He identified this practice not only as seeking to identify one foetal heart only, but also as being a specific attempt to identify the foetal heart of the first twin. He stated that the reason for the practice was the extreme difficulty of obtaining a reliable result from any attempt to monitor the second twin and the impossibility, since that twin was not presenting for delivery, of making many of the further tests which might be available upon it. He expressed the view that the attempt to monitor two foetal hearts could be so misleading as to be a dangerous practice. He also stated, when asked about the practice outside the hospital, that the plaintiff, who was the first twin, could not have been better monitored anywhere in the world.
Applying the principles laid down in O’Donovan v. Cork County Council [1967] I.R. 173, as I have already stated them in this judgment, to this evidence I have come to the following conclusions. It was clearly part of the plaintiff’s case against each of the defendants that in seeking to identify one foetal heart only in the case of a known twin pregnancy, they were each deviating from a practice generally adopted and approved by both the medical administrators of maternity hospitals and by consultant obstetricians. In my view, the evidence on behalf of the plaintiff, if accepted by a jury, could support such a case. It was, in my view, equally clear that part of the defendants’ case was that in seeking to identify one foetal heart only they were following a practice which was “general and approved”within the interpretation of that phrase which I have already set out in this judgment. In my view, the evidence tendered by them was capable of supporting such a case.
Having regard to these conclusions, I am satisfied that if the jury found that the defendants had deviated from a general and approved practice then, having regard to the opinions expressed by Dr. Evans and, to a lesser extent, the opinion expressed by Dr. Bender, it would have been open to the jury, if it accepted those opinions, to hold that the course being taken by the defendants was one which no hospital and/or consultant obstetrician of ordinary skill would, acting with due care, have followed. If, on the other hand, the jury were to find that the defendants had followed a “general and approved practice” they could still have found that they were negligent if, having accepted the opinions of Dr. Evans and Dr. Bender, they concluded from them that the practice was one which had inherent defects which ought to have been obvious to any maternity hospital, medical administrator or to any consultant obstetrician giving the matter due consideration. I am, therefore, satisfied that the answer to the question raised by issue no. 4 in this appeal must be that on the evidence the jury could, if properly directed,
ve found both the hospital and/or the doctor negligent arising from their failure to attempt to identify a second foetal heart.
Issue No. 5
I will first deal with issue no. 5 (e) (iii). The question as to whether the learned trial judge erred in law in failing in his charge to the jury to give appropriate directions concerning the legal principles of medical negligence arising from the failure to seek to identify two foetal hearts and, if he did, whether such error vitiated the trial, clearly involves the considerations set out by me in dealing with issue no. 4 (the previous issue) in this judgment. During the course of his ruling on the defendants’ applications for directions the learned trial judge stated as follows:
“In the present case there is no evidence to show that there is a general and approved practice not to monitor the second foetal heart in the case of twin pregnancies. Indeed the evidence would tend to establish a practice of attempting to monitor a second foetal heart, so I cannot withdraw this part of the case on the grounds that the hospital and the doctor were adopting a general and approved practice.”
In the course of his charge to the jury the learned trial judge dealt with the question of medical negligence in the following terms:
“The concept of negligence is a very simple one. It involves the concept of a duty of care and involves the concept of a breach of duty of care, and nobody denies that. The hospital had a duty of care to the plaintiff and Dr. Jackson does not deny that he had a duty of care to the plaintiff, i.e. the plaintiff and to the plaintiff’s mother. What is denied is that there was any breach of that duty of care. Let me take the position of a highly qualified experienced obstetrician, a specialist obstetrician, Dr. Jackson, as the plaintiff’s doctor and it is not wrong to refer to him as the plaintiff’s doctor because he was his patient just as much as Mrs. Dunne was Dr. Jackson’s patient. Dr. Jackson owed a duty to use reasonable care and skill in treating Mrs. Dunne and in looking after her unborn children, the twins. As a specialist obstetrician he was under a duty to use the skill and knowledge and technique which a specialist obstetrician should have and to make a considered judgment as to what course and what treatment were in the best interests of Mrs. Dunne and her twins. The test of the standard which you should apply is that of the ordinary skilled obstetrician exercising the ordinary degrees of professional skill. It is a matter for you, ladies and gentlemen, in the light of the evidence to decide whether in the handling of the plaintiff Dr. Jackson fell below the standard of the ordinary skilled obstetrician. Now you don’t apply your own judgment as to what in your view he should have done, because you are not obstetricians. You consider whether in the light of the evidence his handling and care and treatment of Mrs. Dunne and of William fell below the standard of the
ordinary specialist obstetrician, and the test is the same in relation to the hospital.”
Upon the conclusion of the judge’s charge Mr. Liston on behalf of the doctor made a very specific requisition based on the fact that the defendants’ case was that there was a practice adopted by the hospital and accepted by the doctor with regard to the monitoring of one foetal heart in a twin pregnancy. He then sought specific further directions to the jury as to the principles laid down in O’Donovan v. Cork County Council [1967] I.R. 173 to which I have already referred. This requisition was resisted by counsel for the plaintiff and was rejected by the learned trial judge.
The conclusions which I have reached with regard to the evidence as to”practices” in monitoring foetal hearts in twin pregnancies, as I have expressed them in respect of issue no. 4, must inevitably lead to the conclusion that the charge of the learned trial judge to the jury on the meaning of medical negligence, though correct in so far as it went, was inadequate. That inadequacy consisted in his failure expressly to point out to the members of the jury two matters. They were: 1. That if they concluded that there was a general and approved practice of monitoring two foetal hearts from which the defendants deviated, they should not find that the defendants were negligent, unless they also concluded that no hospital medical administrator or no consultant obstetrician would have so deviated if he were taking the appropriate ordinary care. 2. That if they concluded that the monitoring of one foetal heart was a “general and approved practice” that they could not find the defendants were negligent unless they also concluded that it was a practice which had inherent defects which should have been obvious on due consideration to a hospital medical administrator or to a consultant obstetrician. This omission is not merely a failure to use a particular phrase or set of words but is a failure specifically to draw to the attention of the jury the legal principles applicable to the determination of cases of medical negligence and the standards by which they must judge them.
I turn then to the further question as to whether this omission from the charge constituted a mistrial which could have led to a miscarriage of justice. I am neither unaware of nor insensitive to the massive burden, both emotional and practical, which these proceedings have imposed upon the parties, both the parents of the infant plaintiff and the medical practitioners whose conduct has been impugned. I am driven, however, to the conclusion that the omissions from this charge which I have identified were such that had a jury been given what I am satisfied were the appropriate directions it might have reached a different conclusion on this vitally important issue. In so deciding I express, of course, no opinion whatsoever as to what its finding, if so directed, should have been. Having reached this decision the only manner in which justice between the parties can be done in this case would be to direct a new trial of the issue of liability against both defendants. I would therefore allow the appeal of each defendant on the issue of liability and direct a new trial on that issue.
As such retrial, pursuant to the provisions of the Courts Act, 1988, will be had before a judge sitting without a jury, it is unnecessary to express any view on the
other challenges to the former trial, including those based upon the form of the questions left to the jury or the nature of the judge’s charge to the jury.
On one question, however, which arose during the hearing of this appeal, I feel I should express my views. Objection was taken by the defendants to the prejudicial effect of a series of questions put to the doctor in cross-examination concerning his decision to direct an oxytocin drip to be administered to the plaintiff’s mother. The reason for that objection was that the uncontested evidence indicated that the drip was removed after five minutes and that there was no conceivable possibility that such a dosage lasting for such a short time could have had any effect on the injuries suffered by the plaintiff. Counsel for the plaintiff sought to justify before this Court this cross-examination on the grounds that evidence of any act of negligence or apparent negligence committed by the doctor, even though unconnected with the damage complained of in the action, was relevant to the determination of issues of causative negligence which were to be decided in the case. In the absence of any question of a system of work or system of conduct, which did not arise in this case, and which was not raised as a relevant question on this appeal, I am satisfied that such a proposition is quite unsound and is, of course, wholly unsupported by authority. In the absence of evidence linking the five-minute dosage of oxytocin to the plaintiff’s injuries, questions concerning it are not relevant nor admissible, and they are clearly prejudicial, though the fact of its being ordered as part of the narrative of the treatment of Mrs. Dunne might be admissible.
Damages
The extent and consequences of the plaintiff’s injuries are very great indeed, and represent a total destruction of any conceivable amenity of life. He is a spastic quadraplaegic with major mental handicap, incapable of any understanding. His sight is impaired. He displays some minimal signs of extra unhappiness on particular occasions and of what only can be described as a relative contentment in others. He is incontinent, and can perform no useful or intended function for himself, having to be fed, dressed and washed. He is totally dependent on assistance for all his needs. He faces the probability of future surgery to correct muscle contractures which have in the past resulted in joint displacement. His expectation of life is approximately normal. All these consequences of the plaintiff’s brain damage are quite irreversible. The general damages assessed in respect of these injuries at £467,000 must be considered in the light of the principles laid down by this Court in the following cases: Foley v. Thermocement Products Ltd. (1954) 90 I.L.T.R. 92; Doherty v. Bowaters Irish Wallboard Mills Ltd. [1968] I.R. 277; Reddy v. Bates [1983] I.R. 141; Cooke v. Walsh [1984] I.R. 710 and Sinnott v. Quinnsworth [1984] I.L.R.M. 523.
Having regard to these decisions the following factors are of particular relevance to the assessment of general damages on the facts of this case: (1) The
extent to which the plaintiff has any appreciation or awareness of his condition and of the amenities of living which he has lost. (2) The extent to which the award of damages under separate headings have made full and ample provision for his care and bodily needs. (3) The totality of his loss of amenity and happiness. (4) The irreversible nature of his condition and the fact that it will continue for a normal expectation of life from birth onwards. (5) The amount of the gross award for damages under all headings of which the amount of general damages is a component part.
In short, the defendants’ submission on this issue is that having regard to these principles and factors and with particular reference to the evidence, which they submit establishes an almost complete lack of awareness and an incapacity to derive pleasure or comfort from anything except bodily care and attention and the presence of his family, the sum of just under £500,000 either viewed in isolation or viewed as a component part from a total award of over £1,000,000 is excessive to a major extent. No submission was apparently made at the trial and no argument was certainly presented on this appeal to the effect that as a matter of principle a person who, as a result of injuries tortiously inflicted, has no awareness of his condition should be entitled under the heading of general damages to nil or nominal damages only. I, therefore, express no view on any such proposition. Rather was the appeal presented to this Court as directed towards what was asserted in all the circumstances should be a moderate figure for general damages. On behalf of the plaintiff it was contended that the case must, having regard to the extent of the injuries and to the fact that they will last literally for the entire of the plaintiff’s lifetime, be classified as unique, and that unique injuries justify a uniquely high award of general damages. I am satisfied that the sum of £467,000 assessed as general damages, having regard to the other damages awarded which amount to over £579,000 and, to the extent of the plaintiff’s lack of awareness of his condition, is excessive to a degree which renders it unreasonable and that the defendants are entitled to succeed in their appeal on this issue. Having regard to my view that there should be a retrial on the issue of liability, I am satisfied that the issue of damages should also be retried.
The grounds of appeal on damages relating to the three items other than general damages which I have outlined in this judgment, were all based rather on the detailed evidence given at the trial than on any general question of principle. I am accordingly satisfied that it is not necessary and would probably not be helpful for me to express any view on them, having regard to the very real possibility that the details of the evidence on these questions could be different on a retrial.
In regard to the question of the cost of providing a house suitable for the residence of the plaintiff and his family, I would, however, feel that I should point out that if account is to be taken, as it was at the trial already had, of the proceeds of the sale of the existing family home, the proposal would appear to require clarification in respect of the arrangements intended as to the ownership of any new house.
No controversy of any kind arose at the trial as to the condition of the plaintiff and the consequences of his brain injury. It would therefore appear very probable that the evidence which will be before the judge hearing the retrial as to damages on this particular topic will be the same as appears in the transcript before this Court. It would appear to me to be desirable that I should in those circumstances indicate a range of general damages which on the applicable principles would appear to be appropriate. I say “range of damages” for obviously the trial judge would properly take into account on the assessment of general damages both the extent to which his other awards fully cared for the plaintiff’s bodily needs and comfort and prospective losses and to the gross award resulting from all his assessments. Such a range of general damages, having regard to the factors which I have indicated, would, in my view, be appropriately found between a sum of £50,000 and £100,000.
I would allow the appeal of each defendant and direct a new trial on all issues.
Griffin J.
I agree.
Hederman J.
I agree.
Collins v. Mid- Western Health Board
[1999] IESC 73; [2000] 2 IR 154 THE SUPREME COURT
CARMEL COLLINS
BARRON J.
The plaintiff’s husband ( “the deceased” ) who was in his early 40s was taken ill suddenly at about 3.30 p.m. on the afternoon of Wednesday the 20th February 1991 while at work. He was a block layer by trade and was working with his brother on a building site. He was unable to
continue and it was some time before he was well enough to go home. On his way home as he passed the surgery of the second-named defendant ( “Dr. O’Connor” ) who lived close to him he saw that his car was outside. The family doctor was Dr. O’Brien. However, the plaintiff had been to Dr. O’Connor on one occasion and the deceased apparently decided to go to him because he was nearer. When he arrived home he told his wife that Dr. O’Connor was probably in his surgery and asked her to ring him to make sure that he was which she did. It was just about 5.00 o’clock. She asked the doctor would he wait a few minutes. She told him: “Jim has a very bad headache. He does not usually go to doctors. He must be very bad.” The doctor said that he would wait. The deceased then changed his clothes and went to the doctor’s surgery on his own.
1. He was examined by Dr. O’Connor and found to be complaining of the symptoms of an upper respiratory tract infection ( “URTI”) or in other
words a head cold. The doctor’s advice was that it would take two to three days to run its course and that it was not necessary to prescribe him any medication.
2. On Saturday, 23rd February the plaintiff who was disturbed that her husband who never went to doctors and who had stayed in bed since his visit to Dr. O’Connor was getting no better rang the doctor. She asked him whether he was absolutely sure that her husband had a viral flu, something which her husband had told her had been the doctor’s diagnosis. She told him that her husband had been in bed for three days and that he never stayed in bed and that she was really concerned. Dr. O’Connor’s reply was that sometimes people who are not used to being sick think they are worse than they are when they do get sick. She asked him if he were sure that there was nothing that he could prescribe for him
and his answer was “no, not for viral flu. it has to take its course. It may take four to five days.”
3. On the 25th February the deceased was no better. The plaintiff rang the defendant at 8.00 o’clock in the morning saying “Jim is very bad” and he came around almost immediately. The deceased was in bed. Following his examination Dr. O’Connor took the view that he was probably suffering from headaches caused by sinus congestion. In the course of this visit he found signs under the patient’s eyes which suggested that he might have increased cholesterol. He advised a test and suggested that a blood sample should be provided at his surgery. The deceased attended Dr. O’Conor’ s surgery on the 28th February where he provided a blood sample for the cholesterol test. On inquiry as to the result on or about the 5th March the plaintiff was told that it was normal. She
indicated to Dr. O’Connor that the deceased was no better and he said that if the deceased wanted he could come up to see him again.
4. The deceased did not get any better. On March the 17th the plaintiff again rang Dr. O’Connor. He was not working on that day but had a locum. She decided that there would be no point in the deceased going to see the locum. On the following day there appears to have been a change of mind. The deceased went to see Dr. O’Brien. He immediately was of the opinion that the deceased needed a CT scan. He contacted the hospital and on the 20th March the deceased received in the post notification of an appointment for the 2nd April. When this arrived the plaintiff thought that it was too far away. She contacted Dr. O’Brien who agreed. He appeared to have made some arrangement with the hospital to admit the deceased and gave his wife a letter suggesting that the hospital had agreed to admit him. In any event at 5.00 p.m. on the
20th of March the deceased was brought to the outpatients department.
5. There he saw the senior house officer, Dr. Nur. After a full examination Dr. Nur took the view that he needed further examinations, and said that he would make an appointment for the deceased to see a specialist, meanwhile he sent him home. The plaintiff immediately contacted Dr. O’Brien. On the following day Dr. O’Brien sought an assurance from Dr. Nur that the deceased would be admitted. When he did not get it, it was decided that Dr. O’Brien would on the following day do everything he could to have the deceased admitted under a consultant. However, events overtook everyone in that the deceased appeared to get a further serious attack at 2.00 a.m. on the 22nd. He was immediately brought into hospital as an emergency. His condition was serious. A lumbar puncture was carried out at 4.00 a.m. and a CT scan at 10.00 a.m. He was diagnosed to have suffered a subarachnoid haemorrhage.
6. Following this scan and the confirmation of subarachnoid haemorrhage the deceased was transferred to Cork. There he came under the care of Mr. Marks, a consultant neurosurgeon. A further CT scan was carried out sometime in the late afternoon which showed a similar pattern to the first one. At this stage the deceased was unconscious and had no real hope of recovery. Ultimately he died on the 27th March.
7. Arising out of this sequence of events the plaintiff has brought proceedings on her own behalf and on behalf of her three children against the two defendants for negligence.
8. The claim is divided into three parts. The first part is a claim against Dr. O’Connor. This in turn is subdivided into two parts. First it is said that he was negligent at the consultation on the 20th February. Secondly, it is said that even if he was not negligent on that occasion he ought subsequently to have referred the deceased to a specialist. The
second claim is against the hospital board because of the failure of Dr. Nur to admit the deceased to the hospital on the 20th March. Finally, there is a further claim against the hospital for negligence in the manner in which the deceased was treated when he was admitted on the 22nd.
9. It is common case that the deceased suffered a subarachnoid haemorrhage on the 20th February, 1991 and a more serious one in the early morning of the 22nd March of the same year. The case against Dr. O’Connor is that he ought to have diagnosed that the deceased was suffering from a serious condition which required him to be referred to a specialist for further diagnosis and, if necessary, treatment.
10. Before considering the question of any liability on the part of Dr. O’Connor, it is necessary to consider what must have occurred at the surgery visit on the 20th February, 1991.
11. This must be seen against the evidence of what had actually occurred that afternoon. This evidence was given by the deceased’s brother. It was to the following effect.
12. The deceased and he were working together laying blocks when sometime around 3.30 p.m. his brother put his two hands up on his head all of a sudden. He asked what was wrong and his brother just said something and looked around. He repeated what’s wrong and his brother said I don’t know, my head. He had turned almost pure white. At that time they were working above ground level. His brother stopped and sat down and remained there for about three quarters of an hour. He asked for panadol. He did absolutely nothing, he was in a complete stressed kind of situation, very pale and white. His brother got him down from where they were working by ladder with the help of another worker. When he reached the ground he went straight into the passenger seat of his
brother’s car. He didn’t leave the site until about twenty to five. His brother had continued to work on and off but checked on him from time to time. At that stage he looked the same but was in awful pain which frightened his brother, whom he had told about the pain. When he got down from the ladder he staggered as he went towards the car. His condition did not change while he was with his brother.
13. The learned trial judge has found as a fact that the doctor diagnosed a viral flu; expressed in his notes as URTI (upper respiratory tract infection). He further found that the doctor was not told of the sudden onset of headache which undoubtedly occurred, and that having regard to what he was told and the apparent condition of the deceased he had asked all the correct questions.
14. It will be necessary to revert to these matters, but it is appropriate to consider at this stage how this diagnosis might have come about. The
deceased had just suffered a serious traumatic experience and his first reaction as he felt well enough to go home was to want to consult a doctor. It was to be expected that when he saw the doctor he would have told him of the sudden and appalling headache and the manner of its onset and said “What is wrong with me Doctor?” This did not happen. The nearest he got to telling the actual history was to tell the doctor that he had felt unwell at work.
15. While this is surprising, it is probably accounted for by several factors. The deceased was unaccustomed to visiting a doctor. By the time he did visit Dr. O’Connor he had recovered sufficiently to go to him on his own. The manner in which Dr. O’Connor conducted his surgery visits was in his own words:
“…. when I say (sic.) see a new patient, when I have the drug history, allergies and that taken, I sit back in my chair and say “right, what is the problem.
What can I do for you?” and give the patient the opportunity to tell me what the problem his. His headache was one of a number of complaints on the first occasion. It was the main complaint on the second occasion.
16. Finally, Dr. O’Connor assumed that the deceased’s purpose in coming to him was preventative. In his own words:
“I think that the reason he came to see me was not that he merely had URTI, but felt unwell and the malaise, and that and the fact that he was a brick-layer and had to use a lot of energy in this would have brought him to see me. Often patients come to get a cure for flu when it is early so that they can prevent it getting worse and stopping them working.”
17. Having found that Dr. O’Connor was not told of the sudden onset of headache and that he had no reason as a result of his surgery consultation
to go beyond his diagnosis of URTI, the learned trial judge found that in the course of that visit Dr. O’Connor had asked all the correct questions. This finding was made in the light of the expert medical evidence that a general practitioner at a surgery visit had an obligation not only to listen to what the patient said but also to ask appropriate questions. This is in effect no more than a reiteration of the general principle that it is the duty of a professional person to satisfy himself or herself that he or she knows what is being asked of them and that it is proper in the interest of the patient or client to act on such instructions.
18. In the present case, the question arises as to whether the learned trial judge took too narrow a construction of the obligation of the general practitioner by confining it to what he was told by his patient at the surgery visit and not taking into account the circumstances under which he came to his surgery. These were the apparent urgency as expressed by
the telephone call from the plaintiff enquiring whether he was still seeing patients as well as what was actually said by the plaintiff. Having asked the doctor to wait a few minutes she told him: “Jim has a very bad headache. He does not usually go to doctors. He must be very bad.”
19. The test of the obligation of the general practitioner is whether a reasonably prudent general practitioner exercising ordinary care would have acted as he did in the circumstances. The reality of the test is to enquire whether or not the general practitioner acted reasonably in the circumstances as known to him. In the present case, the findings of the learned trial judge amounted to a decision that in confining his questions to what he was told by the deceased and his opinion as to his condition he was exercising the degree of care required of him. The plaintiff’s case is that he failed in his duty to the deceased by not taking into account the
circumstances in which the visit was arranged and what was said by the plaintiff in arranging that visit.
20. It is appropriate to look at the evidence in this regard and the views of courts has expressed in similar cases. Professor Ronald Salkind gave evidence on behalf of the plaintiff as to what is expected of a general practitioner. He had been in general practice for some forty years and at the date of the hearing he was Emeritus Professor of general practice in the University of London. Since general practitioners see a whole spectrum of illness one of their major functions is to separate the self-limiting disorders which they can treat from life threatening ones which require a referral. It is important that they should take a good history and record it. Eighty per cent of diagnosis is gained from the history. While the best way to discover what is wrong is to listen to the patient, it is still the responsibility of the doctor to ask questions of the
patients to elucidate the details of the symptoms. Not to do so is neglect.
21. It was not for the patient to volunteer everything that they could think of. The doctor has a duty to elicit the appropriate responses to clues which are given by the patient.
….
73. The issue in this case is really a very simple one. It was accepted by Dr. O’Connor that he knew the significance of sudden onset of severe headache. If the questions had been asked, it is inconceivable that he would not have been told of sudden onset. So the real issue is, should questions have been asked about headache on the 20th? Reliance on notes would normally be sufficient though when something has been missed it follows that it won’t be in the notes. Here not only do the notes on the 20th omit any reference to asking questions about headaches, but it is known that none were asked. Accordingly, the notes in the present case are really immaterial.
74. Dr. O’Connor was not expected to make the correct diagnosis. But he was expected to be in a position to know when his patient should be referred to a specialist. Undoubtedly, on both the 20th and the 25th February there were negative findings which would have suggested that
there was nothing seriously wrong. Nevertheless, history was said to be 80 per cent of diagnosis. So that if no proper history in the sense of correct questions is taken the chance of an accurate diagnosis or decision to refer is seriously restricted.
75. On the 20th February Dr. O’Connor may well have failed to see the significance of the fact that the deceased was someone who did not go to doctors. There does not however seem to be any justification for his failure to follow up on the question of headaches having regard to the telephone call which he received from the plaintiff. Had he done so, he must have discovered that there was a sudden onset of headache from which on his own admission he would have known what the problem was.
76. In the present case a question arises as to whether Dr. O’Connor was entitled to rely upon what he was told by the deceased. Obviously yes, but that did not absolve him from asking questions to establish that his patient
had left nothing out that he as a doctor would have considered material to a proper diagnosis. Here, the information was given in reply to “tell me all about it”. While that must be a good starting point, it should not be the finishing point also. He has to be satisfied that the patient has left out nothing which might be of significance to the doctor. Simple questions would probably be all that was necessary to satisfy the doctor that what he has been told does not mask anything else.
77. The visit was not just a simple surgery visit. It was preceded by a telephone call suggesting urgency and which at the same time gave him two further pieces of information, first, that his condition was likely to be serious because he didn’t go to doctors, and secondly, that the principal symptom was severe headache. Even without the added element of urgency both these matters needed to be taken into account. Neither was
the obvious element of urgency. In my view, to be satisfied with the diagnosis of URTI was negligence.
78. These failures continued on the 23rd and the 25th. These matters required more attention than they were given. While Dr. O’Connor did ask specifically about headaches on the 25th, he persisted with his diagnosis notwithstanding that the answers he was given tended to deny the diagnosis. At the same time all the warning signs which he had ignored on the 20th were also denying his diagnosis as was what he had been told on the 23rd.
79. In this type of case, hindsight is a problem. At the hearing, it was common case that the deceased had suffered serious trauma to the brain on the 20th February. It is all too easy to assume therefore that the doctor is negligent because he fails to diagnose it. That is not the test. The questions to be asked are, did the doctor do all that could reasonably
be expected of a reasonably prudent general practitioner exercising ordinary care and, if not, would what he should have done have led to a correct diagnosis either by him or by a specialist to whom he would have been referred.
80. For the reasons which I have already indicated Dr. O’Connor failed the test on the first question. He did so on the 20th February and equally on the 23rd and the 25th. If he had not so failed the correct diagnosis would have been made probably by him but certainly following tests directed by a specialist to whom the deceased would have been referred.
81. There was no direct evidence on the particular issue whether the conflict between the clinical findings and the information supplied over the telephone as well as that information itself justified further questions. Unfortunately, the conflict lay largely between what Dr. O’Connor knew
or must have known on the one hand and what he was not told and did not know on the other.
82. Mr. Gibson’s evidence appears to support the investigation of an apparent inconsistency. While both Dr. Nur and Dr. Crouch would ask simple questions where pain was a feature, of course, the premise for this is the need to consider all the information wherever it comes from. If there is no such need this aspect of the appeal fails. I cannot see however how that could be correct and would allow the appeal in relation to the claim against Dr. O’Connor.
83. In the course of submissions, counsel for the plaintiff referred to a Canadian authority Dale v. Munthali 73 Dominion Law Reports, 3rd series, p. 588. In that case, a general practitioner was found negligent in failing to realise that his patient’s illness – subsequently diagnosed to be meningitis – was something more than flu. One of the grounds for such
finding was that the doctor should have questioned both the patient and his wife more thoroughly concerning the high fever that had existed prior to his visit.
In Langley v. Campbell The Times November 5th 1975, a general practitioner was found negligent because he failed to consider the possibility that his patient, an Englishman who had recently returned from Uganda, could be suffering from a tropical disease – malaria. He had diagnosed flu, the symptoms being fever, headache and alternative sweating and shivering. The trial judge in reaching his decision accepted evidence from members of the patient’s family that the doctor had been told that the patient had just returned from Uganda and that he had suffered from malaria previously.
84. This type of case depends upon its own facts. Nevertheless, both these cases show that the trial judge regarded as material what the patient
said to the doctor, but also what he was or might have been told by his spouse or other family member.
85. I agree with that view. Where, as here, information is supplied by someone other than the patient whether in arranging the consultation or before or after a visit, it should be taken into account and, if necessary, further questions asked. This is particularly so when, as here, there is a discrepancy between what is said by the patient on the one hand and the family member on the other. The failure to heed what was said by the plaintiff in each of her three telephone calls and to follow it up was negligence.
86. The two cases to which I have referred both acknowledge the importance of what a doctor is told by relatives. I agree entirely. Such information is important. The weight to be given to it is a matter for the doctor, but it should not be completely ignored.
87. In the circumstances, Dr. O’Connor was not entitled to confine himself to what he was told by the deceased and what he saw. He had an obligation to consider the circumstances of the several telephone calls from the plaintiff and what she said in the course of each. Had he not so confined himself, he would have realised the need to refer the deceased to a specialist. What would then have happened and what recovery the deceased would have made is a matter which remains to be determined.
88. The case against the hospital board in relation to Dr. Nur is different. The case for the plaintiff is that Dr. Nur should have admitted the deceased as an inpatient. At the time of his examination in the casualty department of the hospital Dr. Nur was aware that Dr. O’Brien had formed the opinion that the deceased should be referred for expert opinion. Accordingly, he started his examination with this knowledge.
89. The letter was dated 20th March 1991 and headed Jim Collins with his address. It was as follows:
“Dear Doctor
Thank you for admitting the above as arranged. He has been unwell for the past five weeks. Has severe headache – not relieved by analgesics.
Anorexia and weight loss. Past history: Nil relevant
S.W: Used to smoke thirty cigarettes a day until seven weeks ago.
Alcohol é
On examination he looks unwell.
CNS: examination grossly normal. R.S / ENT 1, abdomen /
He has never been unwell previously and usually is reluctant to seek medical advice. Accordingly, I feel he needs admission to rule out anything sinister underlying his symptoms. Yours sincerely”
90. In the course of his examination he asked the deceased various questions. He examined him and he observed his demeanour and how he appeared to look. In answer to questions about his headache the deceased indicated that he had had it for the last four days and that he previously had headache some months before. In a sense this answer was correct in that the headache did not recur sufficiently severely until the 17th so that on the 20th he had been suffering it for four days, the 17th, 18th, 19th and 20th. There was nothing from all of this which suggested to him the urgency which in fact existed. He formed the opinion that the deceased required further examination. It did not seem to him that there was a matter of extreme urgency.
91. It has been submitted that there are other findings which suggested an urgency, but it is not necessary to refer to them. What is significant is the authority vested in Dr. Nur a senior house officer in the accident and
emergency ward. While he could refuse admission, he could not admit a patient without a second opinion. Again, Dr. O’Brien’s letter referred to the possibility of something sinister underlying the deceased’s symptoms. But Dr. Nur did not seek a further opinion. , there was no evidence that if he had called in someone more senior that any different opinion would have been expressed by his senior. It might even be said that he took the same view as Dr. O’Brien but differed from Dr. O’Brien as to the circumstances in which the further examination of the deceased should take place.
92. It seems to me that any system which gives absolute authority to a junior doctor is inadvisable. By its very nature the position of a senior house officer is one where the holder is learning his profession. He must meet from time to time cases with which he is not familiar and in which he would welcome the opinion of a senior. If he is given absolute authority
there is a danger that he may miss things which his seniors would not. I do not seek to impose greater liability on hospitals than is necessary. House officers should not be required to look over their shoulders on every occasion that a patient is brought to casualty. An absolute authority is inadvisable. It is a matter for the hospital authorities themselves to indicate a scheme to provide under what circumstances a house officer would be required to seek the advice of somebody more senior. In the present case, a member of the medical team might well have taken a different view.
93. It seems to me that the problem really arose from the system which gave Dr. Nur such an absolute authority to refuse admission. All the indications were that he ought to have referred the deceased to the medical team having regard in particular to the letter from Dr. O’Brien. In my view he was wrong not to do so. He was, in effect, ignoring Dr. O’Brien’s
concerns and treating the case as calling solely for his own diagnosis.
94. Perhaps he felt himself bound by the system in which case it is the authors of the system who must take the blame. In either case, there was breach of the duty of care for which the first-named defendant is liable.
95. In relation to what occurred on the 22nd March, it was said on behalf of the plaintiff that a lumbar puncture should not have been carried out because it was contraindicated by a number of factors of which intracranial pressure was the most significant. This was denied by the witnesses called on behalf of the defendant. The learned trial judge preferred the latter evidence and for that reason this ground of appeal fails.
96. The tort of negligence is not committed until there is both a breach of duty and loss flowing from it. Although, I have used the word negligent to describe conduct in breach of a duty to take care, that was a
colloquial use of the word. Whether loss flowed from the breaches of care which have been identified and, if so, to what extent was expressly left over by the parties to be determined only in the event of breach of duty being established. This has now been established. Accordingly, I would allow the appeal and remit the matter to the High Court to determine whether loss flowed from the breaches of duty of the first-named defendant on 20th March, 1991 and of the second-named defendant on the 20th February 1991, the 23rd February 1991 and the 25th February 1991, or either of them and, if so, the extent of such loss.
Keane, J.
The facts in this case are fully set out in the judgments of Barron J. I agree with that judgment and with the order which he proposes. I would merely wish to add a few observations as to the case against the first named defendants/respondents (hereafter “the Board”).
In Dunne v. The National Maternity Hospital , [1989] JR 91 Finlay CJ, speaking for the court, set out the principles of law which are applicable to
allegations of medical negligence. In particular, the learned Chief Justice said that:-
“If a medical practitioner charged with negligence defends his conduct by establishing that he followed a practice which was general, and which was approved of by his colleagues of similar specialisation and skill, he cannot escape liability fin reply the plaint if establishes that such a practice has inherent defects which ought to be obvious to any person giving the matter due consideration.”
98. It can, I think, be safely said that, in general, a lay tribunal will be reluctant to condemn as unsafe a practice which has been universally approved in a particular profession. The defects in a practice universally followed by specialists in the field are unlikely to be as obvious as the test requires: if they were, it is a reasonable assumption that it would not be so followed. But the principle, which was first stated by the court in O’Donovan v. Cork County Council, [1967] IR 173 , is an important reminder that, ultimately, the courts must reserve the power to find as unsafe practices which have been generally followed in a profession.
99. In the case of the Board, however, the court is not concerned with a medical practice as such. The allegation against the Board is that, under the
admissions system operated in the hospital, Dr. Nur, a senior house surgeon, was allowed to substitute his own judgment as to whether the plaintiff required admission and investigation as a matter of urgency for the judgment already arrived at by an experienced general practitioner, Dr. Maurice O’Brien, that he did. The claim that the Board were negligent and in breach of their duty to the deceased in operating such a system cannot be refuted, in my view, simply by demonstrating that it is a system in use in at least some other hospitals in these islands.
100. It is, in any event, by no means clear from the evidence that it is, in any sense, a generally approved system. Mr. John Marks, a neurosurgeon who gave evidence on behalf of the plaintiffs, said (Book 2, Q419):
“Q.. You have heard Dr. O’Brien’s evidence, f my Lord accepts it, that he sought to have the deceased admitted for investigation to Limerick Hospital – what would you expect to have been the course taken by the hospital following such a referral?
A. In my experience, having been myself a Casualty Officer in Britain, but not in Ireland, essentially the practices are the same in both countries with very few differences – etiquette in medicine between the two countries is the same, but having been an SHO
[Senior House Officer] in Casualty in Britain and worked here for a number of years, I would have expected a physician to be consulted. I have said in my report I felt the SHO in Casualty – its difficult for him to overrule an experienced GP, and if he is going to overrule a GP’s wish for urgent admission and investigation, he needs some grounds for doing so, i.e. a more experienced person to see the patient, even f only an SHO in general medicine, who is part of the team who will have discussed it perhaps with his Registrar and Consultant. I had disquiet about that aspect of the management.”
101. Professor Ian Bone, a consultant neurologist attached to the Southern General Hospital in Glasgow, said that in Scotland general practitioners were entitled to ensure the admission of their patients to hospital and that this is what he would have expected to have happened in this case. It was put to him in cross-examination, however, that general practitioners in Ireland did not have such a right of admission. Mr. Patrick Plunkett, a consultant in the Accident and Emergency Department of St. James’s Hospital Dublin, gave evidence that the procedure followed by Dr. Nur in the present case was appropriate.
102. In contrast, Professor Peter Behan, a consultant neurologist in Scotland said (at Book 4, Q445):-
“Here is a clinically ill man [about] whom the GP is worried and arranges admission by phone. Suppose this letter came to the hospital in Glasgow. I can positively assure you that that patient would be admitted, for no other reason than the fact that you would be in court if you did not, but clearly you would have to admit him because he is critically ill.”
103. The evidence thus clearly demonstrated that, far from there being a generally approved practice that, in circumstances such as arose in the present case, Dr. Nur was entitled to substitute his judgment for that of Dr. O’Brien as to whether the patient required immediate admission and investigation as a matter of urgency, there was, at best from the Board’s point of view, a difference of opinion.
104. It is relevant to recall the comparative experience of the two doctors concerned. Dr. Nur graduated with a primary medical degree in Pakistan in 1987, a B.Sc in 1988 and then had practical experience as a surgical house officer for 1 year in Pakistan, medical house officer for six months in the Neurology Unit under a professor of neurology and thereafter 18 months equivalent to SHO in surgery in Pakistan. He took up an appointment in
105. Ireland as an SHO in 1990 and had completed the first part of his fellowship of the College of Surgeons in Glasgow.
106. Dr. O’Brien had qualified in 1973 and had been in general practice since that year, i.e. for a period of approximately 18 years at the time of the events which gave rise to the proceedings.
107. A system, which, according to the Board’s own evidence, allowed a junior hospital doctor, although admittedly one at a relatively senior level, effectively to disregard the opinion of an experienced general practitioner that his patient required further investigation as a matter of urgency without even obtaining an opinion from a doctor at a more senior level, clearly suffered from an inherent defect which should have been obvious to any person giving it due consideration. It cannot be equated to a medical practice followed by specialists in a particular field. The letter from Dr. O’Brien should, in my view, have been sufficient to ensure that Mr. Collins was admitted for the investigation that his general practitioner correctly thought he urgently required and particular procedures applicable in the hospital for the admission of patients should not have prevented that happening.
108. As the learned High Court judge pointed out, Dr. Nur was criticised by some of the other doctors who gave evidence for inter alia failing to protect himself by ensuring that he obtained another opinion. It is no doubt the case that medical practitioners today are more conscious than their predecessors of
the risk they run of being sued for negligence. However, the view taken by the doctors whom I have cited, that an SHO in this situation should have consulted the medical team instead of overriding the general practitioner’s view on his own initiative, was by no means solely based on the desirability of his protecting himself against a possible action for negligence.
109. The decision in this case should not be taken as encouraging general practitioners to send patients to hospital where that is unnecessary: it was clearly necessary in the present case that the patient should be admitted and investigated. Nor is there any reason to doubt the importance of having a filtering system in the hospital, operated by junior doctors, which ensures that the limited time and resources of the hospital are not overtaxed by the admission of relatively minor cases. It is sufficient to say that, on the facts of the present case, it is evident that the system in operation failed to segregate a case which plainly required expert investigation from the more routine and even trivial cases.
110. I am satisfied that the appeal against the judgment dismissing the claim as against the Board must, for those reasons, be allowed. I also agree that, for the reasons given in the judgment of Barron J, the appeal against the judgment dismissing the claim against the second named defendant/appellant should also be allowed. I also agree with the order proposed by Barron J.
Fitzpatrick v. Midland Health Board
[1997] IEHC 76 Johnson J.
1. This case arises out of alleged negligence in the treatment of the Plaintiff at the Mullingar General Hospital in the month of May, 1989. The Plaintiff was at the time a 32 year old engineer. In the days prior to the 3rd May, 1989 he thinks he may have pricked his index finger on a thorn in a rose bush. it is also possible at that time, he thinks, he may have contaminated his finger with faeces or such material whilst lifting a manhole in the course of his work.
2. On the evening of the 2nd May, 1989, whilst playing indoor football the Plaintiff received an impact on his right index finger whilst playing in goal. When he returned home that evening his finger started to throb. He attempted with the aid of a needle which he had sterilised by putting into boiling water to ascertain whether or not there was a thorn in the finger. He did not find a thorn and the finer continued to throb. The following morning, 3rd May, 1989 the Plaintiff had to go to Dublin but prior to going presented himself at Mullingar General Hospital complaining of the condition of his finger. This was before 8 a.m. It was indicated to him that it was desirable that an X-ray would be taken but the X-ray department was not open until 9.30 a.m. He decided to go to Dublin and indicated that he would come in that evening to the hospital on his way back.
3. In accordance with the agreement the Plaintiff presented himself at the hospital on the evening of the 3rd May. He was now complaining of pain and swelling in his hand and redness up to his elbow. He was put on anti-biotics and admitted to hospital. He had acute pulp space infection and lymphangitis. Lymphangitis extended up to the forearm and arm. He was placed on anti-biotics and retained in hospital. His finger was operated on by Mr. Mina. The anti-biotics continued and a culture was taken and sent for analysis. The culture was found to be sterile and on the 7th May, 1989 the Plaintiff was discharged from hospital with his finger in a satisfactory condition. He was again seen on the 9th and told to return on the 16th. The Plaintiff returned to hospital on the 16th where it was found that he was suffering from a severe pulp space infection of the right index finger. It was decided that he would be retained in hospital and that he would be operated on for a debridement of the finger.
4. This was done on the 17th May, 1989 by Mr. Mina who removed the tissue from the distal phalanx, took a swab and sent it for culturing.
5. Mr. Mina at this stage decided not to give the Plaintiff any anti-biotics.
6. He was continued to be treated in hospital. It appears in the hospital notes that the result of the culturing of the swab did not return until the 20th May. It does not appear to have been seen by Mr. Mina until 22nd May, when anti-biotics were eventually prescribed, and these anti-biotics were not given to the Plaintiff until the 23rd May.
7. On the 24th May, the Plaintiff was once again admitted to have his finger treated by Mr. Mina. This time the notes indicate that the tendon was intact but the tip of the index finger was necrotic and in the course of the debridement. Mr. Mina removed 2 millimetres of bone and the debridement continued.
8. It happens that Mr. Mina was at this time going on holidays so he decided that he would transfer the care of the patient to Surgeon O’Riain who was in Dublin and by letter the 26th May, 1989 Mr. Mina wrote to Surgeon O’Riain in the following terms:-
“Dear Seamus,
This is the man I just rang you about. He is a 32 year old engineer who had a superficial infection with severe lymphangitis and he was septicaemia some two weeks ago. There was superficial sloughs of the skin which I removed and debrided and there was a puncture at the site of a rose thorn but there was no evidence of pulp space infection. I drained that and put him on massive anti-biotics for three days and then he was sent home. He came back a few days late with severe pulp infection which I drained and now the tendon is exposed but he has flexion of that finger to the right index finger and since I am going on holidays I think you should take him over.
With kind regards.
Yours sincerely,
1 A.G. Mina, FRCS.”
9. This letter is of interest for two reasons:-
1. It states that there was no pulp space infection when admitted initially whereas the hospital notes quite clearly indicate that there was.
2. There is no mention of the fact that Surgeon Mina had actually removed 2 millimetres of necrotic bone from the end of the finger.
10. It appears that the Plaintiff was seen by Surgeon O’Riain on the 27th May, 1989 and after examination by Surgeon O’Riain and an X-ray taken he was diagnosed. Surgeon O’Riain indicated that he had considered the situation and that osteomyelitis had set in and he amputated the distal phalanx of the right index finger. As the result of this the Plaintiff is left with a deformed sensitive finger, which has caused him a great deal of distress and trouble particularly in cold weather, exercising, playing golf or in using a computer.
11. During the case it was interesting to note that in the Defendants witnesses there appeared to be some dispute regarding the fact as to whether, or not it was necessary for Surgeon O’Riain to have amputated the distal phalanx of the finger at all, but the essence of the case as made by the Plaintiff against the Defendants has now resolved into the failure of Surgeon Mina to administer anti-biotics to the Plaintiff on admission on the 16th or 17th, certainly at the latest on the 19th May, 1989.
12. Mr. Ward, an expert on behalf of the Plaintiff, indicated that we had a situation on the 16th and 17th May of quite clearly an acute infection, which on the balance of probabilities was a recurrence of the earlier infection, and the correct treatment would have been to treat that with broad spectrum anti-biotics, probably the ones that succeeded in dealing with the infection on the 3rd, 4th and 5th of May, and this regime should be maintained until such time as a swab was taken and cultured, which would identify precisely the nature of the infection, which would enable a more specialised anti-biotic to be used. In his vie, he said on the balance of probabilities this would have led to a situation whereby the finger need not have been amputated though on the balance of probabilities, he felt it would always have been weak, that it would have not have effected to the degree it does at present either cosmetically or functionally.
13. In contrast to this, Surgeon Mina gave evidence and indicated that he took a decision that the correct way to deal with the case was by not administrating anti-biotics initially on the 16th and 17th, but by debridement the removal of the dead tissue by allowing nature take its course, until such time as the swab had been cultured and the specific anti-biotic which ought to be used identified. He was of view that it would have made no difference to the final outcome in any event.
14. Mr. Varian gave evidence that it was a perfectly legitimate thing for Mr. Mina to have done, that is to say not giving anti-biotics on a general spectrum or a broad spectrum immediately. He did say that in his view the most probable cause of the infection was the recurrence of the original infection and so gave evidence that if it was his patient he would probably have administered anti-biotics immediately, though he did point out that in many cases the puss in these wounds proved to be sterile on analysis. However, Mr. Varian was of opinion that he delay until the 23rd May for giving anti-biotics was not reasonable. Mr. O’Riain who performed the operation finally did agree that the delay from the 17th to the 23rd from the taking of the swab to the administrating of anti-biotics was not reasonable nor acceptable practice and he gave evidence that the swab and culture should have been back by the 19th May.
15. Therefore, the situation in the case appears to be as follows:-
16. Surgeon Mina decided not to apply broad spectrum anti-biotics on the 17th may and that this would appear to be a practise which would have the support of Mr. Varian and I think Surgeon O’Riain.
17. But not of Dr. Ward and under those circumstances one cannot say that the failure to apply the broad spectrum anti-biotics immediately was negligent. However, it is clear from the evidence that the swab taken by Mr. Mina on the 17th May was said to have been cultured in the laboratory, that it ought to have been returned on the 19th May, no enquiries to have been made regarding it, that it was returned on the 20th May, that no steps were taken to act on it until the 22nd May and the steps were not actually taken until 23rd May. It is accepted by everyone that this was not acceptable. Therefore, the first question I have to ask is:-
Question 1. Were the Defendants negligent in failing to ensure that the broad spectrum anti-biotics were applied on the 16th or 17th May?
Answer. The Plaintiff has not established a case in that regard.
Question 2. Once the result of the swab test had been found, should anti-biotics have been given?
Answer. Yes.
Question 3. When should the swab test have been delivered?
Answer. It should have been delivered on the 19th May.
Question 4. Was it negligent that the result of the swab test was not communicated to
18. Dr. Mina or not acted upon until the 23rd May.
19. The answer, in my view, to that is yes.
Question 5. On the balance of the probabilities, would the final result have been better if the anti-biotics had been applied on the 19th May.
20. And in this regard I accept the evidence of Dr. Ward, that on the balance of probabilities that there would have been an improvement in the final result in the Plaintiff’s condition had he been given anti-biotics at a time, namely by the 19th May, which all the doctors indicate he ought to have been.
21. In this regard, where a Surgeon or a hospital, in my view, adopts the course of not applying broad spectrum anti-biotics immediately that this increases the onus ensuring the swift culturing of the swab and the application of the specific anti-biotics, as soon as is possible to ensure that the benefits to be derived therefrom will be given the maximum opportunity of taking effect. I am satisfied on the evidence of Dr. Ward that had the anti-biotics been applied on the 19th as they ought to have been, the finger though still defective would have been better than it now is and that on the balance of probabilities an amputation would not have been necessary. I will therefore award the Plaintiff a sum of £20,000 general damages for injury to his finger.
22. And I reiterate the fact that it is essential where a course is adopted by the Defendant namely not to apply broad spectrum anti-biotics is put in place, it is necessary that (a) a report be delivered regarding the culture of the swab as soon as is practicable to the treating doctor (b) that it is brought to his attention and (c) that he is therefore enabled to act upon it as soon as possible.
Daniels and Another v. Heskin
[1954] IR 73
MAGUIRE C.J. :
The plaintiffs in this action, which was one of negligence tried by Mr. Justice Casey and a jury, seek to set aside the verdict and judgment entered against them by the direction of the trial Judge, and that a new trial be ordered.
They are husband and wife, and the negligence alleged is that of the defendant as a medical practitioner in his care of the wife. She had been safely delivered of a baby by the local midwife, Nurse Power. While being so delivered she suffered a tear of the perineum. The defendant, who is the dispensary doctor for the area, came in response to a summons from Nurse Power for the purpose of stitching the tear. While he was engaged in doing so a needle broke. Portion of this needle remained embedded in the flesh. The defendant completed the stitching with another needle. He did not tell the plaintiffs or either of them what had happened. They learned of it later and about eight weeks afterwards another doctor successfully removed the broken portion of the needle.
A medical practitioner is liable for injury caused to another person to whom he owes a duty to take care if he fails to possess that amount of skill which is usual in his profession or if he neglects to use the skill which he possesses or the necessary degree of care demanded or professed. This statement is taken from Halsbury’s Laws of England, vol. 21, at para 634, and appears to me correctly to summarise the law.
It is conceded that the defendant did owe to the plaintiff, Mrs. Daniels, a duty to take care.
Negligence was alleged under three heads: 1, the breaking of the needle; 2, failure to remove the broken portion promptly; 3, failure to inform the plaintiffs or either of them of the breaking of the needle.
The learned trial Judge ruled that there was no evidence to go to the jury upon which they could find negligence under any of these heads.
As regards the first head of negligence I am of opinion that there is no evidence upon which the jury could hold that the breaking of the needle was due to negligence on the part of the defendant.
The second head of negligence is that the defendant failed to remove the broken needle promptly from the body of Mrs. Daniels. From the expert evidence which on this point was in agreement, two courses were open; one was to suspend the stitching and have the broken needle removed before completing it; the other to complete the stitching and wait for a period of some weeks before having it removed. The latter was the course adopted by the defendant and from the expert evidence given it is clear that to adopt either course is in accordance with accepted medical practice. I am of opinion, however, that the question of whether the defendant was entitled to decide which course to adopt is wrapped up with the question whether it was his duty to inform either or both of the plaintiffs of the mishap directly it occurred.
The only case cited to the Court on this last question was Gerber v. Pines (1). There Mr. Justice du Parcq said that it seemed to him “that a patient in whose body a doctor found that he had left some foreign substance was entitled to be told at once. That was a general rule, but there were exceptions.” Reference was also made to a note of an American case noted in Taylor’s Medical Jurisprudence, 9th ed., vol. 1, at p. 83, Eislein v. Palmer (2), in which it was apparently decided that there was no duty on a physician to tell a patient or her husband that a broken needle had been left in the patient’s body as long as she remained a patient but that there was a duty to tell her when discharging her from his care.
To my mind Mr. Justice du Parcq has laid down the rule correctly. In this case no reason is given why the defendant should be excused what seems to me to be his obvious duty. There was no evidence that any serious consequence would be likely to follow telling the patient what had happened
t
when it happened. Even if it were shown that to tell her might unduly shock Mrs. Daniels there is no reason why her husband should not have been informed. The fact that a choice lay between the two alternative courses of action mentioned above made it to my mind incumbent upon the defendant at least to inform the husband and to allow him to judge whether his wife should be told and in any case to allow the patient or her husband to make the choice. The defendant would clearly have advised that the stitching be completed and the operation of removing the broken needle deferred for some weeks. It was, however, the prerogative of the patient and her husband to decide whether they would accept or reject such advice if given.
In my view the jury should have been asked to consider the question whether or not the defendant was negligent in failing to inform the plaintiffs of the breaking of the needle.
The verdict and judgment should be set aside and a new trial should be ordered.
MURNAGHAN J. :
I agree with the judgment about to be read by Mr. Justice Lavery.
O’BYRNE J. :
I agree with the judgment about to be read.
LAVERY J. :
The plaintiffs appeal to this Court against the dismissal of the action consequent on the ruling of the learned trial Judge that on the evidence there was, as a matter of law, no case for the jury to consider and that if the case went to them for consideration it would not be open to them to find that the defendant had been guilty of negligence and to award damages.
The respective functions of judge and jury are well settled and there was no controversy about them.
There is in every case tried by a judge and jury a preliminary question which is one of law, namely, whether there is any evidence on which the jury could properly find in favour of the party on whom the onus of proof lies. If there is not, the judge ought to withdraw the question from the jury and direct a non-suit if the onus is on the plaintiff. It is not in dispute that the onus of proof was on the plaintiffs.
Neither is there any serious dispute as to what the question was.
The defendant undertook to treat the female plaintiff, to whom I shall hereafter refer as the plaintiff, as a medical man and he is responsible for damage caused by his treatment if he did not possess in a reasonable measure the skill necessary to perform what he undertook or if, possessing such skill, he failed to employ it with reasonable care.
I need not set out again the course of events which has already been stated by the Chief Justice.
The plaintiff charged that the defendant failed in his duty in three respects. First, that in the course of stitching the plaintiff he broke the needle he was using and left the broken part in the plaintiff’s body and that on the evidence it was open to the jury to find that this was due to want of skill or incapacity or carelessness on his part. Secondly, that the mishap having occurred his subsequent treatment of the plaintiff was improper. Thirdly, that the mishap, having occurred it was his duty to inform the plaintiff or her husband in order that if they wished they could seek the advice and attention of another doctor and so avoid the consequences which it is alleged followed the actionor, as it is said, the inaction of the defendant.
On the first question, the plaintiffs concede that the case is not one where the principle, or the phrase, “res ipsa loquitur,” applies and that on the evidence the needle may have broken through a flaw in itself not discoverable by the doctor or otherwise without negligence on his part.
This is certainly the case. Three doctors gave evidence and all agree that this was so.
Mr. McKenna, however, submits that as there was evidence that the breaking of needles in the course of a surgical operation is more often due to an imperfection of technique on the part of the operator than to defect in the instrument it would have been open to the jury on the balance of probability to find that it was caused by negligence.
Leaving aside the question whether imperfection in technique is to be considered negligence in all cases, it seems to me that Mr. McKenna is claiming to apply the principle of “res ipsa loquitur” in another form and that there is a fallacy in his argument.
If there is positive evidence that an event was caused in a particular way and other positive evidence that it was caused in another way, it is undoubtedly true that the jury are to decide as between such bodies of evidence on the balance of probability how it actually occurred.
That is not the case here. No evidence given at the trial would support a finding that it was the manner of the operation which caused the break. On the contrary, such
t
evidence as there is, and it is very slight, would tend to establish that the accepted and normal course was followed. I refer to the evidence of Nurse Power and of Dr. O’Keeffe that he found the needle in what he concluded was its original position and that he did not suggest it had been wrongly used.
It is certainly not open to a jury, in my opinion, in that state of facts to hold that the breaking was caused by imperfection of technique on the ground that say in 60% of cases of broken needles it is so caused, and the same is true of any other statistical record of such happenings until the point is reached where the preponderance is such as to make it a case of res ipsa loquitur shifting the burden of proof to the defendant to give an explanation and to establish that the mishap was not due to his negligence.
In my opinion the first ground fails and the ruling of the learned trial Judge on the question was correct.
Was the course taken by the defendant after the breaking of the needle improper?
Dr. Davidson, an ex-Master of the Rotunda Hospital and a distinguished gynaecologist, called for the plaintiff, said in effect that he would have taken the course which the defendant took, that if he could not recover the needle, he would complete the stitching, keep the party under observation and defer an operation to recover the needle for two or three months, firstly in the hope that it might come out of itself and, secondly, to avoid infection and to allow the period of infection to pass before operating, should the needle not come away.
Mr. Chance for the defendant gave evidence substantially to the same effect.
As against this evidence, Dr. O’Keeffe said, at Q. 573:”I think I would take the patient into hospital straight away and either do it that evening or the following morning, giving her an anaesthetic, put her asleep, and attempt to remove the needle,” and that he did not think there would be any difficulty in doing so.
There is no hint in his evidence that while he might have taken a different course he considered that taken by the defendant as improper or in any way wrong according to accepted medical practice.
In that state of the evidence it would not, in my view, be open to the jury to hold that the defendant was negligent.
The defendant was bound to possess and use reasonable skill, having regard to his position as a general practitioner and in the circumstances of the particular case. If I may quote Maugham L.J. in the case of Marshall v. Lindsey
County Council (1): “I refer to his evidence as an illustration of the fact that in this matter, as in so many others, the doctors differ, and in the presence of this undoubted honest difference of opinion it is not open in my opinion to a jury to hold that it is negligent to accept one view rather than the other,” and again (at p. 540): “I do not doubt the general truth of the observation in the judgment” [in the case of Vancouver General Hospital v. McDaniel (2)] “that a defendant charged with negligence can clear himself if he shows that he has acted in accord with general and approved practice.”
Maugham L.J. was a dissenting judge, but I do not read the judgments of the other members of the Court or of the House of Lords to which the case was takenas differing on this point. In any event, my view is the same as that expressed by Maugham L.J. A contrary view would lead to strange results which are so apparent that I need not give illustrations.
In my opinion the ruling of the learned trial Judge on this question was correct.
There remains for consideration the question whether the defendant should have told the plaintiff or her husband that he had broken a needle and that probably the broken portion was in her body and whether the fact that he did not do so was negligence or a breach of duty founding an action.
As the Chief Justice has said, this question is bound up with the matter I have already dealt with, namely, the defendant’s decision to complete the stitching and to defer an operation for the removal of the needle should this become necessary till the period of infection had passed.
The duty of a doctor to inform his patient of the treatment he is adopting and of incidents such as that under examination has been fully discussed in argument. It is clear that there are some matters which a doctor must disclose in order to afford his patient an opportunity of deciding whether she accepts his view or wishes to consult another doctor and an opportunity to make a choice between alternative courses. An example would be where a dangerous operation was contemplated.
On the other hand, there are matters which the doctor must decide for himself having accepted the responsibility of treating his patient and having regard to his professional skill and knowledge upon which she relies. A clear example would be where in the course of an operation an unexpected complication appears.
Into which category does the present case come?
The evidence establishes, in my opinion, that when the needle broke, the choice before the defendant was either to suspend operations, inform the husband and have the plaintiff removed immediately to hospital (assuming that were possible), and there X-rayed and operated on for the removal of the needle or to complete the stitching and defer the operation for removal.
I have already expressed the view that in deciding on the latter course the defendant acted reasonably and without negligence.
This decision having been taken the evidence establishes that the defendant and the nurse discussed the question whether the plaintiff should be told and agreed that it would be better not to tell her for fear it would damage her health. A period of six weeks would have to elapse during which nothing could be done save to keep the patient under observation. In the words of the defendant in his letter of the 24th October, 1951, he did not inform the patient as he”was of the opinion that if this fact were disclosed to her at that time it would only cause her unnecessary mental anxiety.”
This appears to me to be a reasonable decision and it involved non-disclosure to the husband as well. In the circumstances no purpose could have been served by informing either the patient or her husband.
It is not, however, necessary to hold that the decision was the right one. In order to establish negligence or breach of duty the plaintiff would have to show that it was a decision incompatible with the proper exercise of the defendant’s functions as a doctor.
Moreover, in order to succeed in the action, even assuming the duty to tell, the plaintiff would have to prove that damage which is the gist of the action as pleaded was caused by the failure to tell. In fact, the needle was successfully removed by Dr. O’Keeffe at the appointed time and the event justified the course taken by the defendant. I cannot find any evidence that the non-disclosure caused any damage to the plaintiffs.
For these reasons I am of the opinion that the ruling of the learned trial Judge was correct in all respects and that this appeal should be dismissed.
KINGSMILL MOORE J :
The plaintiffs are a labourer and his wife, living some five miles from Waterford, and the defendant is the dispensary doctor of the district in which the plaintiffs reside. The
plaintiffs claim damages for negligence, or alternatively for breach of contract, alleging that the defendant was employed to treat the female plaintiff and that in so doing he was negligent in three ways, in as much as he allowed a surgical needle to break while stitching her perineum, failed to remove the broken portion of the needle from the perineum or to take early steps to have it removed, and failed to inform the plaintiffs that the broken portion had been left in the perineum.
At 11 o’clock p.m. on the 17th June, 1951, the wife gave birth to her first baby, and in the course of the delivery the perineum became torn to an extent which required stitching. Accordingly, Nurse Power, a midwife of over thirty years experience, who was in attendance at the birth, sent next day for the defendant. He arrived at 11 o’clock a.m., selected from his bag the needles he required, and gave them to the nurse who sterilised them, and threaded in the sutures. The first stitch was inserted without mishap, but in the course of inserting the second stitch the needle broke and about 11/2 inches remained buried, fairly deeply, in the perineum. Another needle and suture were got ready, and with them the second stitch was put in place. Both doctor and nurse searched for, but could not find, the broken portion of the needle and the doctor told the nurse that “it must be in there,” meaning that it was in the perineum, and said “we will have to have an X-ray,” and subsequently”you will have to have an X-ray.” Before leaving he told the nurse to look after the patient, to watch her pulse and temperature and to report to him if anything went wrong, or if she was worried about anything, or if the patient was suffering any discomfort. He does not seem to have given specific directions about the needle, but Nurse Power understood that these directions were given with reference to the needle, and she also understood that if the needle was not found in six weeks the patient was to be X-rayed.
The patient remained under the care of Nurse Power and had a normal convalescence. After nine days the stitches were removed, and the patient got up, and began to take up her ordinary life. She did suffer from what she called”ire,” a word which apparently means “chafing” and which, according to Nurse Power, is a normal feature after delivery, and when she bent down, according to her testimony in the box, she felt as if there was a piece of wire in her flesh which pricked her. Nurse Power attended her daily for nine days after the birth and saw her out walking, or in a social call, about twice a week after that. No complaint
was made to Nurse Power about the sensation of wire, but the patient did complain of the “ire.” Nurse Power in the course of the six weeks after the birth saw and reported to the defendant about three or four times, and told him that she had not been able to find the needle. When the six weeks had expired Nurse Power, without any additional instructions from the defendant, but in pursuance of what she thought had been agreed on the day of the stitching, took her patient into Waterford to a Dr. O’Keeffe, who is a surgeon and gynaecologist, and he made arrangements for an X-ray. The X-ray showed the broken needle lying fairly deep in the perineum. After a delay of about a fortnight, till a bed should be vacant, the patient was operated on, and the broken needle removed, not without some little difficulty, on the 13th August. On the 26th August she was discharged from hospital with the operation scar healed and her health has progressed normally. At the trial she said that she was due to have another child on the 24th June just over twelve months after her first baby was born.
Nurse Power kept the defendant informed of the steps which were being taken by her and believed herself to be carrying out his instructions. She says that when she told Dr. Heskin that she had taken the patient to Dr. O’Keeffe he appeared pleased.
For the plaintiffs, Dr. O’Keeffe and Dr. Davidson, ex-Master of the Rotunda Hospital, gave expert evidence. For the defendant, Dr. Arthur Chance, a very eminent surgeon, was called, and his evidence was for convenience interposed after the plaintiffs’ doctors had given their evidence. The defendant himself was too ill to attend the trial. At the conclusion of the case for the plaintiffs the trial Judge withdrew the case from the jury on the ground that there was no evidence of negligence, and entered judgment for the defendant, and against this ruling and order the plaintiffs appeal.
There was very little controversy as to facts and the case turns on whether on the admitted facts, there was any evidence that the defendant was negligent in the treatment of his patient in any of the three ways suggested, and the answer depends chiefly on the expert evidence of the doctors.
The first negligence alleged was permitting the needle to break in the tissues of the patient. All the doctors agreed that needles may, and do, break owing to flaws in the steel, without the slightest error being imputable to the user. As I understand the evidence, all the doctors also agreed that a sound needle may be broken by a doctor in the course of an operation if the doctor asks too much of it, either by
taking up rather too big a fold of tissue, or by forcing the needle slightly, or subjecting it to some other strain. This Dr. Chance termed an “imperfection of technique,” but he made it quite clear that it was such an imperfection as was inherent in the limitations of human nature, and did not amount to negligence: “there is no living surgeon that has not broken a needle many times,” “all the most skilful people in the world have done it,” “the most competent surgeons in the world have broken needles. The masters have broken them.” Dr. Davidson said: “I have broken needles often myselftrying to get too much into the needle, or putting too big a strain on it,” and in cross-examination he reaffirmed that needles had frequently broken with him, but disclaimed any negligence on his part. Dr. O’Keeffe appeared to have been more fortunate than his colleagues, having only broken needles on two occasions.
If a needle may be broken through a flaw in the steel, or through some failure to reach perfection in handling, which does not amount to negligence, there can be no question of the application of the maxim, “res ipsa loquitur,” and there must be evidence of some definite act of negligence by the doctor. It was suggested that the doctor used a wrong type of needle. The usual needle used for such stitching is the semi-circular, or fully-curved perineal needle, and the X-ray showed that the doctor had used a less fully-curved needle. But on this, Dr. Davidson said: “I should say that not all people use a fully-curved needle. Some use the semicurved needle. Some may use the less fully-curved.”Dr. O’Keeffe agreed that different kinds of needles were used, depending on individual choice.
It was also suggested that the needle was too thin, but it was admitted that a fine needle had the advantage of minimising pain, and no doctor said that the needle used was improperly fine.
I am unable to find any evidence such as would warrant a jury in finding that the fracture of the needle was due to any negligence of the defendant, rather than to an unforeseen weakness in the steel, or to a mishap such as may happen to the most skilful operator, especially when he is working in difficult conditions. To fall short of perfection is not the same thing as to be negligent.
If the doctor was not negligent in breaking the needle, was he negligent in leaving the broken piece in the tissues, to be removed subsequently? There was a divergence of opinion between the doctors as to what was the most suitable course. Dr. Davidson said that if he was a country practitioner, stitching the patient in her own home, and found
it difficult to get at the broken needle at once, he thought that he would stitch up the patient and leave her to see if the needle would show up at a later date; but if the needle had not worked itself out by three or four months time, he would operate, and he would operate at an earlier period if pain or temperature suggested any harm was being done. Dr. O’Keeffe said: “I think I would take the patient into hospital straight away . . . giving an anaesthetic and attempt to remove the needle.” He made it clear that unless he could be certain of operating within twenty-four hours of the time when the needle was fractured, he would prefer to have the needle in situ for some weeks or months before operating. Dr. Chance was of opinion that if the needle were broken in the course of an operation in a hospital theatre, the best course would be to locate and remove the broken portion at once, but if the damage occurred in a private house, and the broken portion could not be at once located and removed, then the better course was to sew up the patient and remove the needle after six weeks or so had elapsed.
None of these eminent medical men purported to be dogmatic; none of them suggested that a course, other than the course he preferred, would have been necessarily erroneous: certainly no one of them suggested that the adoption of the alternative course was negligence. I should like to say with emphasis that an honest difference of opinion between eminent doctors, as to which is the better of two ways of treating a patient, does not provide any ground for leaving a question to the jury as to whether a person who has followed one course rather than the other has been guilty of negligence. It would be different if a doctor had expressed the opinion that the course adopted was definitely erroneous. The defendant in this case adopted the course which Dr. Davidson, a Master of the Rotunda, who for many years was responsible for teaching the best practice of midwifery, considers to have been correct, and the one which ought to have been adopted in the circumstances. Neither the honesty not the competency of this opinion has been challengedindeed Dr. Davidson was called as the expert witness for the plaintiffs. I do not understand Dr. O’Keeffe to have suggested that there was anything negligent in leaving the needle in situ to be removed subsequently, though he himself would probably have attempted an early removal if he could be sure of doing the operation within twenty-four hours. There was no evidence that the defendant, faced with an emergency, could have been sure of making suitable arrangements for an operation to take place within the period assigned, and in Dr. O’Keeffe’s own opinion, if this could not be ensured, the most proper course was that taken by the defendant.
There seems to me to be no evidence fit to be considered by a jury to suggest that the defendant was negligent in leaving the needle in the tissues for removal at a subsequent period when the tissues should have healed and risk of infection would have diminished.
The third head of negligence alleged against the defendant was his failure to give immediate information to the patient or her husband that portion of the needle was buried in the tissues.
Counsel for the plaintiffs suggested that there was a rule of law that such information should be given. He relied first on the words of Mr. Justice du Parcq in a case of Gerber v. Pines , very shortly reported in 79 Sol. Jo. 13. The learned Judge is there alleged to have said that “it seemed to him that a patient in whose body a doctor found he had left some foreign substance was entitled to be told at once. That was a general rule, but there were exceptions.”Counsel next referred to an American case, noted in Taylor’s Medical Jurisprudence, 9th ed., vol. 1, at p. 83, Eislein v.Palmer (1), in which it was apparently decided that there was no duty on a physician to tell a patient or her husband that a broken needle had been left in the patient’s body so long as she remained a patient, but that there was a duty to tell her when discharging her from his care.
I doubt very much whether the judges in either of these cases intended to enunciate a rule of law. If they did I must respectfully disagree. A doctor owes certain well recognised duties to his patient. He must possess such knowledge and skill as conforms to the recognised contemporary standards of his profession and, if he is a specialist, such further and particularised skill and knowledge as he holds himself out to possess. He must use such skill and knowledge to form an honest and considered judgment as to what course, what action, what treatment, is in the best interests of his patient. He must display proper care and attention in treating, or in arranging suitable treatment for, his patient. Any attempt to substitute a rule of law, or even a rule of thumb practice, for the individual judgment of a qualified doctor, doing what he considers best for the particular patient, would be disastrous. There may be cases where the judgment of the physician is proved by subsequent events to have been wrong, but if it is honest and considered and if, in the circumstances known to him at the time, it can fairly be justified, he is not guilty of negligence. There may indeed be cases where the nature of the judgment formed or the advice given is such as to afford positive evidence that the physician has fallen short of the required standard of knowledge and skill, or that his judgment could not have been honest and considered, but it lies on the plaintiff to adduce evidence from which such a failure of duty can reasonably be inferred.
I cannot admit any abstract duty to tell patients what is the matter with them or, in particular, to say that a needle has been left in their tissues. All depends on the circumstances the character of the patient, her health, her social position, her intelligence, the nature of the tissue in which the needle is embedded, the possibility of subsequent infection, the arrangements made for future observation and care, and innumerable other considerations. In the present case the patient was passing through a post-partumperiod in which the possibility of nervous or mental disturbance is notorious; the needle was not situate in a place where any immediate damage was to be anticipated; husband and wife were of a class and standard of education which would incline them to exaggerate the seriousness of the occurrence and to suffer needless alarm; and arrangements were made to keep the patient under observation during the period when sepsis might occur, and to have the patient X-rayed at a period when the bruising and injuries caused by the birth should have subsided. If it were open to me to speak as a juror I would say that the defendant’s action was correct. That question is not directly before this Court. What we have to consider is whether it was so incorrect as to provide evidence on which a jury could reasonably conclude that the defendant had failed in any of the duties toward his patient which I have already enumerated. In my opinion there is no such evidence.
All the doctors who were examined were of opinion that it would be wise for a doctor to tell a patient or some member of her family of such a mishapbut wise in a self-regarding way, so as to protect the doctor from the possibility of future vexatious actions. Thus Dr. Davidson said he would inform the patient as otherwise he might “find himself in an awful mess.” “From my own point of view I would inform her, looking after my own interest.” In cross-examination he admitted that there was a choice between “either keeping yourself right by informing the patient, or taking a chance and saving her anxiety.” Dr. O’Keeffe said he would have told one of the family; but agreed that there were patients who should not be informed immediately after a confinement, that in every case a doctor must make up his own mind, and that as Dr. Heskin and Mrs. Power knew the patient and the circumstances of the case they were in the best position to form a correct judgment. Mr. Chance thought the patient should not have been informed; that there was no reason to inform her except the doctor’s self-protection; that in his own interest a doctor should tell somebody.
Here the defendant told Mrs. Power. No doubt he would have been wise in his generation to tell the husband and so avoid future trouble for himself. But this policy, though justifiable from motives of narrow self-interest, may seem to some less laudable than the other alternative of “taking a chance” to save the patient anxiety.
Nor can I see how the patient’s interests in this case would have been secured by informing her husband, thus causing anxiety to him and, if he revealed his knowledge, to her. It has been suggested that if her husband had been informed he might have got into touch with Dr. O’Keeffe, who in turn might have been able to get a bed and remove the needle within the period of twelve to twenty-four hours in which he considered operation would be desirable. The husband, though examined, never suggested that he would have taken this course, and, if we are to pay attention to the evidence given by Dr. Davidson for the plaintiffs, it is a matter of doubt whether such an operation at this time was the best treatment. Even if there was a duty to inform, which in this case I do not think there was, I cannot find that any damages have been incurred by failure in such duty.
To avoid any misconstruction I may add that I do not wish to suggest that a doctor would always be justified in keeping such knowledge to himself. In every case there is a clear duty to take precautions against injury to the patient from the presence of the needle. The nature of those precautions must vary with each case. In the present case the arrangements made with Mrs. Power, to keep a close watch on the patient and have an X-ray at the appropriate time, were such that it would be impossible to find that the doctor had not exercised his judgment honestly, responsibly and with a due regard to his patient’s interest.
Walsh v. Family Planning Services Ltd.
[1992] IR 505 Supreme Court Finlay C.J.
The plaintiff instituted proceedings against the defendants, claiming damages for negligence and for assault arising out of an operation for vasectomy carried out by the second and third defendants on the plaintiff as agents of the first defendant on the 3rd May, 1984.
By order dated the 17th July, 1989, made by MacKenzie J. in the High Court, the court (a) found that the defendants were not negligent, (b) found that there was a technical assault and battery on the plaintiff in that he did not consent to Dr. Kelly’s participation in the operation, and assessed damages for the plaintiff in a total sum of £42,500, directing that he recover that sum from the defendants.
The defendants appealed against the order awarding the plaintiff the sum of £42,500 damages and sought in lieu thereof an order dismissing the plaintiff’s action or, alternatively an order for a re-trial of the said action. The plaintiff entered a cross-appeal against the said order, appealing:
(1) against the award of damages on the basis that it was insufficient,
(2) against the dismissal of the claim for negligence, and
(3) against the finding that a warning of the likely or possible consequences of the operation was given to the plaintiff by the defendants and that such warning was sufficient.
I have read the judgment which is about to be delivered by O’Flaherty J., and in which the facts of this case and considerable details of the evidence given are comprehensively and, I am satisfied, accurately set out and it is unnecessary for me to repeat them in this judgment.
The issues
The issues which arose at the hearing of the appeal and cross-appeal are as follows.
1. Whether the finding by the learned trial judge that the plaintiff had failed to prove negligence in the carrying out of the operation of vasectomy was supported by the evidence before him.
2. Whether the plaintiff was entitled to a finding on the evidence of negligence against the defendants arising from the failure of the defendants sufficiently to warn him of the possible consequences of the operation of vasectomy which was carried out on him.
3. Whether the finding by the learned trial judge that the defendants had been guilty of a “technical assault” on the plaintiff by reason of their failure to inform him that the third defendant would participate in the carrying out of the operation was supported by the evidence and correct in law.
4. Whether the plaintiff was on the evidence entitled to a finding of assault arising from the failure of the defendants adequately to warn him against the possible consequences of the operation of vasectomy.
5. Whether, if the plaintiff was entitled to a finding of assault against the defendants, he was entitled by way of damages therefor to the entire consequences of the carrying out of the operation on him, whether flowing from the fact of assault or not.
6. Whether if the plaintiff was entitled to damages on the basis of an assault for the entire consequences of the carrying out of the operation on him, or for negligence consisting of failing to warn him of the possible consequences of the operation, the sum of £42,500 awarded by the learned trial judge was sufficient.
With regard to these issues, I have come to the following decisions.
1. Negligence in the carrying out of the operation
The evidence before the learned trial judge, which he apparently accepted, as appears from his judgment, was that the complication which the plaintiff suffered as a result of this operation was a condition of orchialgia which is a rare condition the cause of which is not yet known to medical science but which has been established as following upon an operation for vasectomy in an infinitesimal proportion of cases, though the causative link between the operation and the condition has not yet been established. No evidence was submitted to the trial judge to the effect that any particular want of care in the carrying out of the operation could be or was associated with the onset of this condition of orchialgia. Medical witnesses called on behalf of the plaintiff were unable to point, under cross-examination, to any act of negligence arising in the carrying out of the operation, the evidence of which had been given before the court. In these circumstances, I am satisfied that the learned trial judge was clearly entitled to reach a conclusion, as he did, that there was no negligence in the carrying out of the operation and, indeed, it appears to me that a finding to the contrary effect would be difficult to support on the evidence which appears from the transcript.
2. Negligence in failing to give a sufficient warning of the possible consequences of the operation
I am satisfied that there is, of course, where it is possible to do so, a clear obligation on a medical practitioner carrying out or arranging for the carrying out of an operation, to inform the patient of any possible harmful consequence arising from the operation, so as to permit the patient to give an informed consent to subjecting himself to the operation concerned. I am also satisfied that the extent of this obligation must, as a matter of common sense, vary with what might be described as the elective nature of the surgery concerned. Quite obviously, and apart even from cases of emergency surgery which has to be carried out to persons who are unconscious or incapable of giving or refusing consent, or to young children, there may be instances where as a matter of medical knowledge, notwithstanding substantial risks of harmful consequence, the carrying out of a particular surgical procedure is so necessary to maintain the life or health of the patient and the consequences of failing to carry it out are so clearly disadvantageous that limited discussion or warning concerning possible harmful side-effects may be appropriate and proper. On the other hand, the obligation to give warning of the possible harmful consequences of a surgical procedure which could be said to be at the other end of the scale to the extent to which it is elective, such as would undoubtedly be the operation of vasectomy, may be more stringent and more onerous. I am satisfied, however, that the standard of care to be exercised by a medical practitioner in the giving of the warning of the consequences of proposed surgical procedures is not in principle any different from the standard of care to be exercised by medical practitioners in the giving of treatment or advice, and that there are not good grounds for suggesting that the issue of negligence arising under this heading is outside the general principles which have been enunciated by this Court in previous casesconcerning the standards of care and the methods of ascertaining them arising in medical negligence cases which were summarised in Dunne (Infant) v. National Maternity Hospital [1989] I.R. 91, which summary has been set out in the judgment about to be delivered by McCarthy J. It is, I am satisfied, true, however, that if a medical practitioner charged with negligence consisting of a failure to give sufficient warning of the possible consequences of an operation, defends his conduct by establishing that he followed a practice which was general, that it may be, certainly in relation to very clearly elective surgery, that the court might more readily reach a conclusion that the extent of warning given or omitted contained inherent defects which ought to have been obvious to any person giving the matter due consideration than it could do in a case of complicated medical or surgical procedures, and an allegation that, although generally adopted, they were inherently unsafe.
The learned trial judge in his judgment in this case accepted the evidence of Dr. Sheehy-Skeffington, who acted as a director of the first defendant, that in the course of an interview had with the plaintiff prior to his consenting to undergo the operation of vasectomy, she informed him that “very rarely, for no known reason, some patients experience pain for some years after the operation” and that such pain was ongoing indefinitely, but that that occurrence was very rare. I am satisfied that this was an adequate and sufficient warning of the existence of the possible consequence of orchialgia to which I have already referred in this judgment. That consequence, for no known reason, occurred in very rare cases, to the knowledge of the medical profession at the time when the conversation between Dr. Sheehy-Skeffington and the plaintiff took place. On the evidence in the case, Dr. Sheehy-Skeffington was at that time aware of one case out of a number of thousands of the carrying out of the operation of vasectomy by the first defendant in which such a complication occurred. Notwithstanding medical evidence to the contrary from some of the witnesses called, I take the view that there was an obligation on this doctor to inform the plaintiff of that possible consequence. The fact that he was given such a warning was completely denied by the plaintiff and was also denied by his wife, who was present on the occasion on which the warning was stated by Dr. Sheehy-Skeffington to have been given. I am quite satisfied that the learned trial judge was entitled to accept the evidence of the doctor and to reject the evidence of the plaintiff and his wife on this conflict, and that having done so this Court cannot by way of appeal disturb that finding.
The further issue arises, however, on this part of the case, as to whether, having regard to the evidence as to what occurred to the plaintiff in addition to an ongoing pain, identified as orchialgia by a number of the witnesses after this operation, consisting of various unsuccessful surgical interventions, the removal of one testicle and, apparently, a loss of potency as distinct from or in addition to a loss of sexual capacity due to pain were matters which were, on a standard of reasonable care, a possible consequence he should have been warned about. I am satisfied that the evidence did not establish that these various consequences were a known complication of a carefully carried out operation of vasectomy, and that the furthest the evidence went was what I have already indicated, namely, the existence of an ongoing indefinite pain, arising from orchialgia, in a very limited number of cases, indeed, expressed in single numbers amongst multiple thousands. For this reason, I conclude that quite apart from any question of the plaintiff having denied the giving of such a warning and, therefore, not being in a position to express any view, other than a hypothetical one, as to what he would have done if he had been given it, the warning accepted by the learned trial judge to have been given by Dr. Sheehy-Skeffington, on this occasion, was sufficient, on the facts, to discharge her responsibility to exercise reasonable care.
3. Validity of the finding of technical assault
I am in agreement with the conclusions reached by O’Flaherty J. in the judgment which he is about to deliver concerning this issue. It seems to me that the evidence conclusively established that the consent which the plaintiff gave was to the carrying out of this operation upon him by a person employed by Family Planning Services Ltd., the first defendant, for that purpose. The operation was at all times, on any evidence given, under the complete control of the second defendant, who was so employed. No evidence was adduced that the intervention of the third defendant, who participated in the operation by way of assistance, in any way altered the nature of the operation or the consequences flowing from it. It was clear that the plaintiff, who was not at any time under general anaesthetic, was aware at all times of the intervention of the third defendant in the operation. He came to this organisation, the first defendant, for the purpose of having this particular operation carried out, and that is precisely what was done. In my view, it is not orrect, as a matter of law, to hold that the intervention of the third defendant, even if the plaintiff was not informed beforehand of it, could or does vitiate the consent which it was necessary for him to give in order for the operation lawfully to be carried out. In these circumstances I would allow the defendants’ appeal against the finding, even of technical assault, in this case.
4. Claim for assault arising from inadequacy of warning
Having regard to my decision that the warning given was sufficient and that the learned trial judge’s finding to that effect cannot be overturned, this question does not arise for decision in this case. Having read the judgment about to be delivered by O’Flaherty J., however, and having, in particular, considered his adoption of the principles laid down in the case decided by the Supreme Court of Canada in Reibl v. Hughes (1980) 114 D.L.R. (3d) 1, I am satisfied that it is correct as a matter of law to say that where a doctor has, in relation to a surgical intervention or other treatment, failed to give an adequate or sufficient warning as to possible future risks involved in the patient undergoing it, that the proper cause of action against such person in the event of damage ensuing is a claim for damages for negligence, and that a claim of assault should, as O’Flaherty J. says, be confined to cases where there is no consent to the particular procedure or where an apparent consent has been vitiated by fraud or deception.
Notwithstanding the very severe and distressing consequences of this operation, which it is clear on the evidence this unfortunate plaintiff has suffered, I am driven to the conclusion that the defendants are entitled to succeed in the entirety on the appeal which they have brought, and that the plaintiff must fail in his cross-appeal. I would, therefore, not wish to express any view on the two issues concerning damages which do not now arise, in my view of the case.
Hederman J.
I agree with the judgment to be delivered by O’Flaherty J.
McCarthy J.
I
The first particular of negligence and breach of duty alleged in the statement of claim is:
“Failing to warn the plaintiff of the risks inherent in the procedure and in particular of the possibility of the subsequent development of adverse symptoms with such radical effects.”
It is not in dispute that the plaintiff’s sex life ceased in 1987. Whilst Mr. Parsons, a consultant urological surgeon from the Royal Liverpool Hospital, referred to the possibility of successful vasovasostomy or reversal of vasectomy, and this is borne out by medical literature produced at the trial (“Open ended vasectomy, sperm granuloma and post-vasectomy orchialgia”, 32 Fertility and Sterility no. 5) it appeared to be accepted that the plaintiff’s condition, including impotence, is permanent and incurable. My judgment does not depend on the resolution of that question.
Whose choice is it?
The legal principles to be applied in cases of alleged medical negligence have been settled by decisions of this Court: O’Donovan v. Cork County Council [1967] I.R. 173 and Dunne (Infant) v. National Maternity Hospital [1989] I.R. 91. In Dunne’s case they are detailed by Finlay C.J. at p. 109 of the report:
“1. The true test for establishing negligence in diagnosis or treatment on the part of a medical practitioner is whether he has been proved to be guilty of such failure as no medical practitioner of equal specialist or general status and skill would be guilty of if acting with ordinary care.
2. If the allegation of negligence against a medical practitioner is based on proof that he deviated from a general and approved practice, that will not establish negligence unless it is also proved that the course he did take was one which no medical practitioner of like specialisation and skill would have followed had he been taking the ordinary care required from a person of his qualifications.
3. If a medical practitioner charged with negligence defends his conduct by establishing that he followed a practice which was general, and which was approved of by his colleagues of similar specialisation and skill, he cannot escape liability if in reply the plaintiff establishes that such practice has inherent defects which ought to be obvious to any person giving the matter due consideration.
4. An honest difference of opinion between doctors as to which is the better of two ways of treating a patient does not provide any ground for leaving a question to the jury as to whether a person who has followed one course rather than the other has been negligent.
5. It is not for a jury (or for a judge) to decide which of two alternative courses of treatment is in their (or his) opinion preferable, but their (or his) function is merely to decide whether the course of treatment followed, on the evidence, complied with the careful conduct of a medical practitioner of like specialisation and skill to that professed by the defendant.
6. If there is an issue of fact, the determination of which is necessary for the decision as to whether a particular medical practice is or is not general and approved within the meaning of these principles, that issue must in a trial held with a jury be left to the determination of the jury.”
Applying the first and second principles, which appear to me to interact, to the findings of fact made by the trial judge I agree with his conclusion that the case in negligence was not proved. “All the evidence is that the operation was performed properly. Nothing was omitted, nothing that should have been done was not done but it was clumsy, it should have been done under general anaesthetic and it took an inordinately long time . . .” The plaintiff has contended that these latter findings establish negligence within the principles I have cited; I reject that submission. What is described as being clumsy or over-long in time does not establish a lack of care; indeed, it may well establish the converse. On the issue of negligence, it remains to consider the application of the third principle, adapted, as need be, to the special circumstances of what is called elective surgery.
All surgery, in a sense, is elective although the election may have to be implied from the circumstances rather than determined as express. The gravely wounded, the gravely ill may be unconscious but in urgent need of surgery. A patient’s condition may be such as to demand surgical intervention as the only hope for survival. Such may be called non-elective surgery. The patient given the choice between enduring pain and having limb replacement surgery or fusion surgery may technically be electing as between the pain and the surgery but the election may be more apparent than real. An extreme of elective surgery would be what is purely cosmeticsimply to improve the natural appearance rather than to remedy the physical results of injury or disease. Even it may have an element of quasi-medical care because of the psychological reaction of the patient to personal appearance. A like argument may be advanced
in respect of contraceptive surgery, male or female. Such surgery does not have a direct effect on the health or well being of the patient nor in prolongation of life; it may alleviate marital stress or other domestic pressure and in that sense be therapeutic. Essentially, however, it is for the improvement of the sex life of the couple concerned. At least since 1979 the danger of chronic orchialgia was known and documented; there had been one instance of it in the first defendant’s clinic itself in 1983. It still remained a minor and elective surgical procedure.
The only case cited in respect of patient choice is Daniels and Another v. Heskin [1954] I.R. 73 where, so far as relevant to the instant appeal, the question arose as to the alleged obligation on the part of a doctor to inform a patient that a foreign object has been left in her body so as to enable her or her husband to take such action as they might deem fit. Maguire C.J. upheld this argument, approving a decision of du Parcq J. in Gerber v. Pines 79 Sol. Jo. 13, and saying at pp. 76-77:
“In this case no reason is given why the defendant [the doctor] should be excused what seems to me to be his obvious duty. There was no evidence that any serious consequence would be likely to follow telling the patient what had happened when it happened. Even if it were shown that to tell her might unduly shock Mrs. Daniels there is no reason why her husband should not have been informed. The fact that a choice lay between the two alternative courses of action mentioned above made it to my mind incumbent upon the defendant at least to inform the husband and to allow him to judge whether his wife should be told and in any case to allow the patient and her husband to make the choice. The defendant would clearly have advised that the stitching be completed and the operation of removing the broken needle be deferred for some weeks. It was, however, the prerogative of the patient and her husband to decide whether they would accept or reject such advice if given.”
This was a dissenting judgment. Lavery J., with whose judgment Murnaghan and O’Byrne JJ. agreed, said at p. 80:
“The duty of a doctor to inform his patient of the treatment he is adopting and of incidents such as that under examination has been fully discussed in argument. It is clear that there are some matters which a doctor must disclose in order to afford his patient an opportunity of deciding whether she accepts his view or wishes to consult another doctor and an opportunity to make a choice between alternative courses. An example would be where a dangerous operation was contemplated.
On the other hand, there are matters which the doctor must decide for himself having accepted the responsibility of treating his patient and having regard to his professional skill and knowledge upon which he relies. A clear example would be where in the course of an operation an unexpected complication appears.
. . . It is not, however, necessary to hold that the decision [not to inform the patient and her husband] was the right one. In order to establish negligence or breach of duty the plaintiff would have to show that it was a decision incompatible with the proper exercise of the defendant’s functions as a doctor.”
The force of these observations is somewhat weakened by the subsequent paragraph where Lavery J. said:
“Moreover, in order to succeed in the action, even assuming the duty to tell, the plaintiff would have to prove that damage which is the gist of the action as pleaded was caused by the failure to tell. In fact, the needle was successfully removed by Dr. O’Keeffe at the appointed time and the event justified the course taken by the defendant. I cannot find any evidence that the non-disclosure caused any damage to the plaintiffs.”
Kingsmill Moore J. at p. 87 said:
“I cannot admit any abstract duty to tell patients what is the matter with them or, in particular, to say that a needle has been left in their tissues. All depends on the circumstancesthe character of the patient, her health, her social position, her intelligence, the nature of the tissue in which the needle is embedded, the possibility of subsequent infection, the arrangements made for future observation and care, and innumerable other considerations. In the present case the patient was passing through a post-partum period in which the possibility of nervous or mental disturbance is notorious; the needle was not situate in a place where any immediate damage was to be anticipated; husband and wife were of a class and standard of eduction which would incline them to exaggerate the seriousness of the occurrence and to suffer needless alarm; and arrangements were made to keep the patient under observation during the period when sepsis might occur, and to have the patient X-rayed at a period when the bruising and injuries caused by the birth should have subsided. If it were open to me to speak as a juror I would say that the defendant’s action was correct. That question is not directly before this Court. What we have to consider is whether it was so incorrect as to provide evidence on which a jury
could reasonably conclude that the defendant had failed in any of the duties toward his patient which I have already enumerated. In my opinion there is no such evidence.”
The observations made by Kingsmill Moore J. on such matters as the social position of the patient or the class and standard of eduction of the patient and her husband I find difficult to understand as relevant criteria, however well meaning the expression of such views. The learned judge may well have been offending against the very principle that he was seeking to uphold.
In McMahon & Binchy, Irish Law of Torts (2nd ed.) at p. 268 the authors deal with the duty of disclosure:
“What is the proper test for deciding whether the doctor has given sufficient instruction to the patient? Three principal solutions have been proposed. The first resolves the question by reference to the generally accepted practice in the medical profession. This approach, which is an application of the Bolam test ([1957] 1 W.L.R. 582), stresses the fact that the decision of what to tell the patient has traditionally been regarded as primarily a matter of medical judgment and discretion. The second solution, at the other end of the spectrum, concentrates on the patient’s right of self determination in regard to what is to be done to his body. It requires full disclosure of all material risks incident to the proposed treatment, so that the patient, rather than the doctor, makes the real choice as to whether treatment is to be carried out . . . The third approach lies between these two extremes. While tilting somewhat towards the first, it applies the Bolam test save where disclosure of a particular risk ‘was so obviously necessary to an informed choice on the part of the patient that no reasonably prudent medical man would fail to make it . . . ‘ Sidaway v. Governors of the Bethlehem Royal Hospital [1985] A.C. 871 at 900.”
Despite the division identified by Messrs. McMahon & Binchy, in a case such as the present I believe that the second and third solutions propounded by them are essentially the same. In determining whether or not to have an operation in which sexual capacity is concerned, it seems to me that to supply the patient with the material facts is so obviously necessary to an informed choice on the part of the patient that no reasonably prudent medical doctor would fail to make it. What then is material? Apart from the success ratio of the operation, what could be more material than sexual capacity after the operation and its immediate sequelae? Whatever about temporary or protracted pain or
discomfort, the only information given to the plaintiff and his wife on the score of sexual capacity, upon which they placed so much emphasis, was that contained in the brief paragraph headed “Does it affect your sex-life? No”. This is not a question of merely determining that a particular outcome is so rare as not to warrant such disclosure that might upset a patient but, rather, that those concerned, and this includes the authors of the information sheet, if they knew of such a risk, however remote, had a duty to inform those so critically concerned with that risk. Remote percentages of risk lose their significance to those unfortunate enough to be 100% involved. In my view it is inescapable that the defendants, possessed as they were of this knowledge, were in breach of their duty to the plaintiff, and to his wife, for failing to identify the risk of impotence, whether it be functional due to pain and discomfort, or mechanical due to some other cause.
It does not automatically follow that the patient would not have undergone the operation despite being informed of the risk. The plaintiff testified that if he had known he would not have undergone the procedure; it was the defendant’s case that he did know at least of the risk of chronic orchialgia. The trial judge accepted that a warning was given by Dr. Sheehy-Skeffington as to possible complication including a statement that very rarely, for no known reason, some patients experience pain for some years after the operation, going so far as to say that it might be ongoing, indefinitely. The fact that the plaintiffs evidence in respect of what he was told was not accepted cannot determine the real issue as to the requirement of warning the plaintiff, and his wife, of the risk of sexual impotence. It follows, in my judgment, that the plaintiff has established his right to damages. Ordinarily, I would be content to make such assessment as appeared properly to flow from the evidence; here the learned trial judge, who rejected the claim in negligence but upheld it in assault, did assess damages for assault; it may be that the basis of the assessment would be same but I find it totally unsatisfactory that it should remain on that basis of assessment and I would, accordingly, direct a new trial as to damages.
Assault and Battery
The defendants appealed against the finding in the High Court that there had been a technical assault and breach of constitutional rights in that the plaintiff had not consented to the participation of Dr. Kelly in the operation. His judgment on that aspect has been vigorously criticised by counsel for the defendants; in my view with some justification. The conduct of the plaintiff after the operation may well be criticised; indeed many legitimate criticisms may be levelled at his entire course of conduct, including the initial nature of the proceeding and the extent of the claim. That does not, however, mean that there was no evidence upon which the trial judge could properly conclude that there had been an absence of consent. The plaintiff went to the clinic, he believed, to be operated on by people whom he believed to be competent although, in fact, he was mistaken in thinking that Dr. Sheehy-Skeffington would play any role in the operation itself. At a time when he was in some state of anxiety yet ready for the operation a third party was introduced; it seems to me it was open to the trial judge to conclude that the plaintiff’s consent was not validly obtained. For that reason I would reject the appeal against the finding of technical assault. A breach of a constitutional right is a very grave matter, but assault actions should not be dressed up in a constitutional guise. Defamation and trespass to property may theoretically offend against some of the guarantees in respect of personal rights contained in Article 40 of the Constitution. It is, however, the State which is enjoined by its laws to protect as best it may from unjust attack and in the case of injustice done to vindicate the life, person, good name and property rights of every citizen. Claims to attack such rights unjustly may well be resisted calling in aid the constitutional guarantee; the guarantee, however, is not to be used to elevate the status of a trifling cause of action. There being a technical assault, in my judgment nominal damages was the true measure and I would assess them at one penny.
In the result, I would dismiss the defendants’ appeal against the finding of assault, allow the defendants’ appeal against the assessment of damages in so much as the same exceeds one penny and allow the plaintiff’s cross-appeal on negligence and remit the action for the assessment of damages.
O’Flaherty J.
…
Dr. Orr said that she was a Fellow of the Royal College of Surgeons and was specifically qualified in family planning and had done a family planning course. She had been associated with family planning since 1979. Dr. Orr explained that Family Planning Services Ltd. is a nonprofit making registered charity. She established that she was not a”director” at the clinic run by the company but she was employed from time to time to carry out operations at the company’s clinic. She went on to describe the operation that was performed on the plaintiff. Mr. Walsh had already been shown into the room by the nurse and she introduced herself. Dr. Orr asked him whether he was perfectly happy with everything that had been discussed with Dr. Sheehy-Skeffington and asked whether there was anything he wanted to ask her. Dr. Orr said that he was content with his decision to go ahead and have a vasectomy. At this point Dr. Kelly came into the room and she said that she introduced him to Mr. Walsh and said: “This is Dr. Kelly who is assisting me today.” Mr. Walsh, according to Dr. Orr, did not say anything in response to that. He just said “good morning” to him. She went on then to describe the carrying out of the operation whereby she made the opening on the right side of the scrotum and Dr. Kelly did the opening on the left and, as far as she was concerned, the operation was uneventful and presented no special difficulties. Dr. Kelly gave evidence of his experience which was that he had carried out about twenty vasectomies under supervision immediately prior to this. About three years before that he was involved in about forty vasectomies, twenty on his own. He was now anxious to increase his confidence because of the lapse of time since he had carried out any vasectomies. He had no actual memory of being in the clinic on the 3rd May, 1984, and did not remember the operation at all. In fact he could not remember anything exceptional having taken place at any of the vasectomy operations at which he assisted.
Mr. Parsons gave evidence that he was a consultant urological surgeon attached to the Royal Liverpool Hospital. He said that the plaintiff’s condition was that of orchialgia. He said that it was an exceedingly rare condition of which a practising urologist might have experience of a handful of cases. He said that he had personally seen two and had been aware of others following vasectomy and he said that the plaintiff described identical symptoms as those. He said that the condition was notoriously difficult to treat and he thought that reversing the vasectomy seemed to be the only treatment by which a cure was likely.
The matter was at hearing before MacKenzie J. for seven days. He gave a reserved judgment on the 17th July, 1990, holding that there had been a technical assault on the plaintiff by reason of the participation of Dr. Kelly at the operation for which he awarded £30,000 general damages and £12,500 special damages. He found that there was no negligence on the part of the defendants. The defendants have appealed against the judge’s finding that there was an assault and the plaintiff has cross-appealed against his finding that the defendants were not negligent.
The learned trial judge found that there had been a technical assault and battery in that the plaintiff never consented to Dr. Kelly’s participation in the operation. The plaintiff’s counsel sought to uphold this finding of assault and battery on two bases, viz. (i) as found by the judge: that the plaintiff had not consented to Dr. Kelly’s participation in the operation; and (ii) that the consent that he gave to have the operation carried out was not “an informed consent” because the long-term consequences had not been explained to him.
The judge held, in effect, that the operation was performed properly and no serious effort was, or could be, made to upset that finding on appeal. The evidence was all one way: that it was the fact of the vasectomy rather than the way it was carried out that had caused the plaintiff’s problems.
The plaintiff made the case that he was consenting to Dr. Orr only to carry out the operation. But it appears that he mistakenly thought that Dr. Sheehy-Skeffington might, also, have carried out the operation though, as it transpired, she had never carried out such an operation. So the reality of the situation was that the plaintiff at the time that he consented to have the operation carried out did not know the extent of Dr. Orr’s competence and the evidence did not establish any lack of competence on Dr. Kelly’s part: rather that he was in need of more experience to improve his confidence. It seems to me that what the plaintiff was agreeing to was that the operation should be carried out by a person or persons with the requisite skill and that it should be competently done. That is what happened in the circumstances of this case. Even accepting the plaintiff’s version of events, I believe that Dr. Kelly’s participation in the operation was under the supervision of Dr. Orr at all times and that his participation did not vitiate the consent that he had undoubtedly given to the particular procedure that he wished to have carried out.
In the alternative, it is submitted under this heading that because the possible risks of long term consequences and complications were not explained to the plaintiff his consent was not an “informed consent”and, therefore, the operation as performed constituted an assault on him. Assuming for the sake of this argument that that was the factual positionthough I will return to this topic laterI believe that if there had been such a failure to give a warning as to possible future risks that would not involve the artificial concept of an assault, but, rather, a possible breach of a duty of care giving rise to a claim in negligence. A claim of assault should be confined to cases where there is no consent to the particular procedure and where it is feasible to look for a consent. This was the conclusion reached by the Supreme Court of Canada in Reibl v. Hughes (1980) 114 D.L.R. (3d) 1. The facts of that case were, shortly stated, that while or immediately after undergoing serious but competently performed surgery, the plaintiff suffered a massive stroke causing paralysis on the right side of the body and impotence. Stroke, paralysis, or even death, were among the risks attending both this surgery or its aftermath and the patient’s refusal to undergo the operation. In answering the patient’s query about the possibility of stroke, the surgeon did not inform him of his chance of being paralysed during or shortly after the operation but stressed that the chances of paralysis were greater if the patient did not undergo surgery. The patient testified that he would have foregone this elective surgery until a lifetime retirement pension had vested in a year and a half, and would have opted for a shorter, normal life rather than a longer one as a cripple. In other words, it was held that while, if he did not have the operation he would most likely suffer a stroke some time in the future (within, perhaps, four or five years), the possibility of an immediate stroke following on the operation was not stressed. The trial judge in that case found for the plaintiff both in battery and negligence. The finding of battery was upset by the Supreme Court but the finding of negligence was upheld. Delivering the judgment of the Court, Laskin C.J. said (at p. 10):
“The well-known statement of Cardozo J. in Schloendorff v. Society of New York Hospital (1914) 211 N.Y. 125 at pp. 129-30 that ‘every human being of adult years and sound mind has a right to determine what shall be done with his own body; and a surgeon who performs an operation without his patient’s consent commits an assault, for which he is liable in damages’ cannot be taken beyond the compass of its words to support an action of battery where there has been consent to the very surgical procedure carried out upon a patient but there has been a breach of the duty of disclosure of attendant risks. In my opinion, actions of battery in respect of surgical or other medical treatment should be confined to cases where surgery or treatment has been performed or given to which there has been no consent at all or where, emergency situations aside, surgery or treatment has been performed or given beyond that to which there was consent.”
Laskin C.L then instanced cases where there had been misrepresentation of the surgery or treatment for which consent was given but a different surgical procedure or treatment was carried out and went on to say:
“In situations where the allegation is that attendant risks which have been disclosed were not communicated to the patient and yet the surgery or other medical treatment carried out was that to which the plaintiff consented (there being no negligence basis of liability for the recommended surgery or treatment to deal with the patient’s condition), I do not understand how it can be said that the consent was vitiated by the failure of disclosure so as to make the surgery or other treatment an unprivileged, inconsented to and intentional invasion of the patient’s bodily integrity. I can appreciate the temptation to say that the genuineness of consent to medical treatment depends on proper disclosure of the risks which it entails, but in my view, unless there has been misrepresentation or fraud to secure consent to the treatment, a failure to disclose the attendant risks, however serious, should go to negligence rather than to battery. Although such a failure relates to an informed choice of submitting to or refusing recommended and appropriate treatment, it arises as the breach of an anterior duty of due care, comparable in legal obligation to the duty of due care in carrying out the particular treatment to which the patient has consented. It is not a test of the validity of the consent.”
In my judgment, the trial judge was in error in holding that there was an assault, technical or otherwise, in this case. If, as he held, there had been a technical assault that should give rise only to nominal damages. I would confine the notion that the plaintiff can recover all the damages that flow from an assault without having to prove that they are foreseeable to intentional assaults.
The plaintiff cross-appeals against the trial judge’s finding that negligence had not been proved against the defendants. The judge said in the course of his judgment:
“The case in negligence is not proved. All the evidence is that the operation was performed properly. Nothing was omitted, nothing that should have been done was not done but it was clumsy, it should have been done under general anaesthetic and it took an inordinately long time and to my mind this harboured up an intense resentment in the plaintiff’s mind as to his treatment generally by the medical profession and in that way a great deal of his troubles must relate to what happened in that room on that day.
As regards the failure to give a warning I believe it was given by Dr. Sheehy-Skeffington. The question is was it sufficient. I think it was. The plaintiff must have known this to be a consequence of the operation, otherwise he would have followed the direction in the circular to report immediately if anything unusual should have happened to him. Why he did not do this is a mystery.”
Counsel for the plaintiff submits that the finding that the operation was “clumsy” is not consistent with a finding that there was no negligence. The defendants countered by saying that there was no evidence to support the finding that the operation was done in a clumsy fashion. It is pointed out that the plaintiff’s expert did not think that the operation had taken an undue length of time because, as he said, it had often taken good vasectomists forty minutes to carry out such an operation and there was certainly no evidence to support the finding that the operation should have been done under general anaesthetic; on the contrary, it was given in evidence that this operation was done frequently under local anaesthetic. There was no evidence to support the trial judge’s strictures as regards the manner in which the operation was carried out. Even if there was any substance in them and if they went to establish negligence, which they do not, the plaintiff would only be entitled to compensation for such discomfort as he suffered for the duration of the operation, nothing more.
As regards the warning which the learned trial judge said that Dr. Sheehy-Skeffington gave, counsel for the plaintiff submits that the learned trial judge erred in law in finding that a warning of the likely or possible consequences of the operation had been given to the plaintiff and in holding that such warning was sufficient, particularly in view of the fact that this was an elective operation. The plaintiff made the case in evidence that he was given no warning. So did his wife. Dr. Sheehy-Skeffington swore that she always gave such a warning. Counsel submitted that the direct evidence of the plaintiff, who must be taken to have a better recollection of matters, should have been preferred to that of Dr. Sheehy-Skeffington who did not recollect her actual interview with Mr. and Mrs. Walsh. However, she did swear that she alwaysgave this warning and the learned trial judge was entitled to act on that evidence. This is a primary finding of fact with which, in the ordinary way, we as an appellate court are not entitled to interfere. It is right to say, too, that dents had been made as regards the plaintiff’s recall which the trial judge would have been entitled to take into account. I leave aside evidence that the plaintiff gave of minor details concerning the state of the room in which the operation was carried out and other matters incidental to the operationwhich it is hard to creditbut there were at least three matters which could be demonstrated objectively not to be correct:
(1) Dr. Sheehy-Skeffington cannot have said that she or Dr. Orr would carry out the operation since she had never carried out such an operation. Her role was that of a counsellor.
(2) The plaintiff swore that Mr. Butler said that he was fed up getting the clinic’s problem cases but Mr. Butler swore that not only would he not have said that in front of a patient concerning a clinic but he could not have said it because he had not got many problems from the defendants’ clinic.
(3) The plaintiff spoke of writhing in pain during the operation. This was rejected by the medical testimony as impossible and the trial judge agreed with that conclusion.
So, in my judgment, the trial judge was entitled to hold that a warning was given along the lines indicated by Dr. Sheehy-Skeffington in the course of her testimony. The plaintiff, having made the case that nowarning was given, and his case having been conducted on that basis, cannot, I believe, argue in the alternative that if a warning was given it was insufficient. If the plaintiff’s case at the trial had been that a warning, though given, was insufficient in the sense that the plaintiff was not made to appreciate fully what might be in store for him I, for my part, would think that this case would have been difficult to refute. No warning as to lasting complications was in the literature; on the contrary, the description of the operation in the literature which he received was rather bland, to say the least; no such warning was given by Dr. Orr who was in charge of carrying out the operation and the warning he was given came at the end of a catalogue of other matters dealt with by Dr. Sheehy-Skeffington. I would have thought it prudent that the possibility of lasting complications should be placed high up on any agenda and should certainly have been in the literature. It would certainly have put the issue of whether a warning was given or not beyond all doubt.
Mr. Keith Parsons, the defence expert, said that if he were counselling a patient before a vasectomy he would not mention the risk of post-vasectomy orchialgia. This is because he thought it so rare as to not require routine warning though when it was pointed out to him in cross-examination that Dr. Sheehy-Skeffington had said that she had given a warning he seemed to agree that that, too, accorded with general and approved practice.
I do not accept that the question of whether a warning should be given in relation to a procedure such as this is to be determined in accordance with the criteria set out in Dunne (Infant) v. National Maternity Hospital [1989] I.R. 91 as regards general and approved practice. Rather I think it is a matter for the trial judge, in the first instance, to find whether there has been a breach of the duty of care owed by the defendants to a person such as the plaintiff. That is to be resolved on the established principles of negligence. This was the approach of the Supreme Court of Canada in the Reibl v. Hughes (1980) 114 D.L.R. (3d) 1.
I leave aside the requirements that may come into play in the case of emergency or essential surgery where questions of life and death arise as I do questions of possible emotional upset such as were considered by the Court in Daniels and Another v. Heskin [1954] I.R. 73 and I deal, exclusively, with the case in hand. I have no hesitation in saying that where there is a question of elective surgery which is not essential to health or bodily well-being, if there is a riskhowever exceptional or remoteof grave consequences involving severe pain stretching for an appreciable time into the future and involving the possibility of further operative procedures, the exercise of the duty of care owed by the defendants requires that such possible consequences should be explained in the clearest language to the plaintiff.
The catalogue of misfortunes of this plaintiff, it must be said, went beyond anything previously known; his situation appears to be unique. The doctor could not be expected to anticipate the many calamities that befell the plaintiff. One operation that he underwent was contrary to his surgeon’s recommendation. I believe that the warning that Dr. Sheehy-Skeffington says she gave was sufficient in the light of the prevailing medical knowledge and experience. It was, it should be said, along the lines of the warning that Mr. Tanner said that he gave his vasectomy patients. He said, having dealt with short-term consequences of the operation, that he warned them of “the difficult long-term complications of pain, long term pain, which can occur, and that this usually disappears after eighteen months.”
I regret that I cannot derive any assistance from the plaintiff’s assertion that had the warning been given which Dr. Sheehy-Skeffington said she had given, he would have heeded it in the sense that he would not have undergone the operation. This is because he must now be taken to speak with the wisdom of hindsight and, naturally, no rational human being who has undergone what the plaintiff has, undoubtedly, undergone would say that he would go through it all again for the sake of what was to be achieved by the operation. The plaintiff is bound by the primary finding of fact made by the trial judge in this regard, viz. that the warning was given to the plaintiff and, in those circumstances, it seems to me that I am precluded from engaging in any examination of whether if a more powerful warning was given the plaintiff would have acted on it in the light of his flat contradiction that any warning at all was given.
I would allow the defendants’ appeal and dismiss the plaintiff’s cross-appeal.
Geoghegan v. Harris
[2000] IEHC 129; [2000] 3 IR 536 Kearns J.
1. The Plaintiff in this case is a married man and business man who lives in County Kildare. He was born on the 27th November, 1944.
2. He is suing the Defendant for alleged negligence in the carrying out of a dental implant procedure on the 1st July, 1992. As a result of a bone graft which was taken from his chin in the course of the procedure, the Plaintiff suffered damage to the incisive nerve at the front of his chin which, from the time of the procedure, has left him with a condition of severe pain at the mid line of his chin known as chronic neuropathic pain. It is this aspect of the procedure, namely, the bone graft, rather than the insertion of the actual dental implants themselves, which is accountable for the Plaintiff’s symptoms.
3. The Plaintiff has also sued the Defendant for failing to disclose to him in advance of the operation the risk that chronic neuropathic pain might eventuate as a consequence of this procedure. This was, in fact, his initial complaint against the Defendant.
4. The hearing before this Court, largely because of the highly technical evidence involved, lasted some twenty days. Two days were taken up with legal submissions on informed consent/duty of disclosure. With a view to shortening the trial and for the purpose of complying with the recently enunciated requirement of the Supreme Court that, even in relation to fact, submissions should be made at the conclusion of the evidence, the parties were invited to make such submissions in writing and the same have been received by the Court prior to the delivery of this part of the judgment.
5. Because of the complex and technical nature of the evidence, the parties have agreed that the Court should be free to deliver its judgment in successive parts. The issue of quantum, should it arise, has by agreement been deferred to a later time. The first part of the Judgment deals with the allegation that the Defendant failed to disclose a material risk.
6. The second part of the judgment, which does not overlap with the first, addresses the central question of fact upon which the claim of negligence is brought: Did Dr Harris, in the course of harvesting a bone graft from the Plaintiff’s chin on the 1st July, 1992, take the bone graft at a point on the chin too close to the apices of the Plaintiff’s lower incisor teeth? The evidence in the case clearly establishes that general and approved practice in the medical profession is that one should respect a 5 mm zone between the apices of the teeth and the upper margin of any bone graft. The crucial factual issue to be determined therefore, is whether or not Dr Harris transgressed this barrier. Dr. Harris denies that he did. In this regard, the Court has to consider not only Dr Harris’s own evidence, but the entire subsequent history of the lower incisor teeth, a detailed anatomical study of the chin and its nervous system, and also the significance and interpretation of a number of X-rays taken in the aftermath of the particular procedure. The evidence in relation to the X-rays alone consumed many days of the hearing and is highly complex. Part of the difficulty arises because the Defendant and his experts challenge the reliability of X-rays, including Dr Harris’s own X-rays, when it comes to the accurate measurement of fine distance between two objects or points of reference given that X-rays are two dimensional representations of three dimensional reality.
7. It is therefore my intention to deal separately with the factual issue upon which the claim in negligence is based, and separately also, if necessary or appropriate, with the legal consequences of a finding of fact (if such be the case) that Dr Harris transgressed the 5 mm barrier when taking the bone graft on the 1st July, 1992.
…..
LEGAL CONSIDERATIONS, OTHER EVIDENCE AND CONCLUSIONS
Duty of Disclosure/Informed Consent
52. The obligation on a medical practitioner carrying out or arranging for the carrying out of an operation to inform the patient of any possible harmful consequence arising from the operation, was addressed by the Supreme Court in Walsh -v- Family Planning Services Limited & Ors ., (1992) 1 IR 496.
53. The immediate issue the Court had to resolve insofar as the warning was concerned was, firstly, had a warning been given and, secondly, was the warning sufficient. A majority of the Court determined that it would not disturb on appeal the trial Judge’s determination that a warning had been given and that it had been sufficient.
54. In arriving at their conclusions, those members of the Court comprising the majority and who gave judgments (Finlay CJ and O’Flaherty J) did so by reference to different legal principles. I think it is fair to say that the contrasting approaches have caused commentators, Judges and practitioners alike some considerable difficulty for this reason. On the one hand Finlay CJ applied the principles and test set out in Dunne (an Infant) -v- National Maternity Hospital , (1989) IR 91 as indicating the appropriate standard of care.
55. In a nutshell, that test is to determine whether the medical profession generally, or a reputable school of opinion within it, would regard a warning as necessary, subject to the exception that a general and approved practice might contain inherent defects which should be obvious to any person giving the matter due consideration. If that latter position were to obtain, then the fact that a medical practitioner followed general medical practice would not suffice to exonerate him from responsibility.
56. O’Flaherty J., with whose judgment Hederman J concurred, took a different approach from the Chief Justice and did not accept that the question of whether a warning should be given in relation to a particular procedure is to be determined in accordance with the criteria as set out in Dunne as regards general and approved practice. He stated:-
“Rather I think it is a matter for the trial Judge, in the first instance, to find whether there has been a breach of the duty of care owed by the defendants to a person such as the plaintiff. That is to be resolved on the established principles of negligence. This was the approach of the Supreme Court of Canada in Reibl -v- Hughes , (1980) 114 DLR (3D) 1.”
57. This approach, at the other end of the spectrum, concentrates on the patient’s right to determine what is to be done to his body. It requires full disclosure of all material risks incident to the proposed treatment, so that the patient, thus informed, rather than the doctor, makes the real choice as to whether treatment is to be carried out.
In “Medical Negligence Actions” by John White, the author states at p. 190:-
“It is not unfair to observe that Walsh’s case is bewildering both in the alternative criteria of decision adopted by its adjudicators and in the application of those criteria of decision to the facts of that case.”
58. In relation to the approach set out by Finlay, C.J. Mr. White states (at p. 189):-
“The fact is that, if the principles of negligence liability with respect to negligence in diagnosis and treatment are to apply mutatis mutandis with respect to disclosure of the risks of adverse consequences associated with proposed treatment, the result would be that the standard of disclosure will be limited to what ‘general and approved practice’ within the medical profession, or a reputable school of opinion within that profession, requires subject to the exception that the defence of general and approved practice can be defeated where the plaintiff can demonstrate that ‘such practice has inherent defects which ought to be obvious to any person giving the matter due consideration’. But what can this caveat mean in the non technical context of what a person is entitled to know concerning the risks of adverse consequences attending proposed treatment? And, in any event, how can that entitlement be satisfied by a standard which is based upon the customary practice of the medical profession with the opportunity, in exceptional cases, for the plaintiff to establish that the standard of the profession was unacceptable? And, although the Chief Justice also exhibited a benign willingness to overrule the standards of the profession in the context of nondisclosure of risks of adverse consequences, the result of such a course is to work the policy of the Canterbury doctrine within the confines of a prima facie professional standard criterion applicable to diagnosis and treatment which is obviously unacceptable.”
Canterbury -v- Spence (150 US App D.C. 263), which was followed in Reibl -v- Hughes , adopted the proposition that, as a general principle, the patient has a right to know of all material risks associated with a proposed form of treatment in exercise of the individual’s right to self-determination.
59. The concept of materiality may be taken to embrace (a) severity of the consequences and (b) statistical frequency of the particular risk. As was stated in Canterbury (p. 788):-
“A very small chance of death or serious disablement may well be significant; a potential disability which dramatically outweighs the potential benefit of the therapy or the detriments of the existing malady may summons discussion with the patient. There is no bright line separating the significant from the insignificant; the answer in each case must abide a rule of reason.”
60. However, in relation to the issue which the Court is called upon to address in this case, an analysis of the judgments yields the same answers, arrived at by the application of the different principles, in relation to two critical questions, that is to say:-
(a) The requirement on a medical practitioner is to give a warning of any material risk which is a “known complication” of an operative procedure properly carried out.
(b) The test of materiality in elective surgery is to enquire only if there is any risk, however exceptional or remote, of grave consequences involving severe pain stretching for an appreciable time into the future.
61. All five Judges of the Supreme Court clearly agreed in Walsh that in elective surgery any risk which carries the possibility of grave consequences for the patient must be disclosed. The requirement is set out in the various judgments without qualification in respect of statistical frequency. In fact, this consideration is firmly ruled out.
62. At no point in his judgment did Finlay C.J. resile from the description of the duty so trenchantly stated by O’Flaherty J at p. 535:-
“I have no hesitation in saying that where there is a question of elective surgery which is not essential to health or bodily well being, if there is a risk – however exceptional or remote – of grave consequences involving severe pain stretching for an appreciable time into the future and involving the possibility of future operative procedures, the exercise of duty of care owed by the defendants requires that such possible consequences should be explained in the clearest language to the plaintiff.”
63. Similar views were expressed by McCarthy, J. and Egan J.
64. Finlay C.J. in his judgment stated at p. 510:-
“I am satisfied that there is, of course, where it is possible to do so, a clear obligation on a medical practitioner carrying out or arranging for the carrying out of an operation, to inform the patient of any possible harmful consequence arising from the operation, so as to permit the patient to give an informed consent to subjecting himself to the operation concerned. I am also satisfied the extent of this obligation must, as a matter of common sense, vary with what might be described as the elective nature of the surgery concerned. Quite obviously, and even apart from cases of emergency surgery which has to be carried out to persons who are unconscious or incapable of giving or refusing consent, or to young children, there may be instances where as a matter of medical knowledge, notwithstanding substantial risks of harmful consequence, the carrying out of a particular surgical procedure is so necessary to maintain the life or health of the patient and the consequences of failing to carry it out are so clearly disadvantageous that limited discussion or warning concerning possible harmful side effects may be appropriate and proper. On the other hand, the obligation to give warning of the possible harmful consequences of a surgical procedure which could be said to be at the other end of the scale to the extent to which it is elective, such as would undoubtedly be the operation of vasectomy, may be more stringent and more onerous.”
65. He went on to state as follows at p. 511:-
“On the evidence in the case, Dr. Sheehy Skeffington was at that time aware of one case out of a number of thousands of the carrying out of the operation of vasectomy by the First Defendant in which such a complication occurred (i.e. pain lasting for some years after the operation). Notwithstanding medical evidence to the contrary from some of the witnesses called, I take the view that there was an obligation on this doctor to inform the plaintiff of that possible consequence .” (Bracketed words and emphasis added).
66. In effect, Finlay C.J. arrived at the same conclusion as his colleague, albeit by applying a different principle. While some of the witnesses called in Walsh felt no warning was required, Finlay C.J. clearly felt that the exception for inherent defects provision in Dunne could be invoked in the circumstances of the case so that there was a requirement to give a warning of a remote risk with grave consequences.
67. It is important to underline, as Finlay C.J. did, that the duty extends to “known complications” of a “carefully carried out operation”, so that clearly the duty must be confined to such consequences or to consequences which may be described as foreseeable or predictable consequences arising from such complications. Mere coincidental and unrelated risks, for example, could not properly fall within the compass of any duty, any more than consequences which might flow from the practitioner’s negligence.
Bolton -v- The Blackrock Clinic & Ors ., (unreported decision of the Supreme Court, 23rd January, 1997) did not purport to vary or alter the requirement for the type of warning necessary in elective surgery.
68. Hamilton CJ at p. 13 stated:-
“The surgery contemplated in this case on the 4th day of March, 1988 viz the sleeve resection operation was undoubtedly elective surgery in the sense that it was a matter for the Appellant to decide whether or not she would undergo such an operation and to give or withhold or consent thereto.
Before obtaining such consent there was a clear obligation on Mr. Wood to (i) satisfy himself as to the necessity for the operation (ii) explain to the appellant the necessity for the operation and the consequences of failing to have the operation (iii) explain to the appellant the nature of the operation, and (iv) inform the appellant of any possible harmful consequence arising from the operation.” (emphasis added)
69. The questions this Court has to address therefore in the instant case are as follows:-
(1) Is chronic neuropathic pain a known or foreseeable consequence when placing an implant in the lower premolar area or when taking a bone graft from a patient’s chin?
(2) If so, is there a requirement to warn, regardless of the remoteness of the risk and the views of the medical experts in the case that a warning is not required?
(3) Had an appropriate warning been given, would the Plaintiff nonetheless, as a matter of probability, have elected to undergo the procedure?
(4) Insofar as the Plaintiff has made an allegation of a misrepresentation against Dr. Harris that he said there would be “no pain, no pain whatsoever” associated with the procedure, is he precluded from pursuing a case in negligence for breach of the duty of disclosure if the Court finds as a fact that no such statement was made by the Defendant?
(5) Was the Plaintiff in the category of “inquisitive patient” to whom a special duty was owed?
(1) Was neuropathic pain a known complication ?
70. It is submitted on behalf of the Defendant that the Plaintiff’s chronic pain is a unique occurrence, not just a rare occurrence. None of the expert medical witnesses who gave evidence on both sides had ever experienced in any of their patients the development of such a symptom at this site, nor was any one of them aware of a single instance of such a phenomenon being recorded in the medical literature.
71. It was further argued that the mandible and the teeth are commonly and frequently the sites of more radical and invasive surgery carried out by both maxillo facial surgeons and oral surgeons which necessarily involves severe damage to the incisive plexus of nerves and other nerves and yet, not even in those cases, has there been recorded or experienced a single instance of the onset of chronic neuropathic pain.
72. Mr. Cooney cited from Jones Medical Negligence (2nd Ed. 1996) at p. 121 the following passage in relation to “unforeseeable harm” as follows:-
“It is axiomatic within the concept of negligence that if a particular danger could not reasonably have been anticipated, the defendant has not acted negligently, because a reasonable man does not take precautions against unforeseeable consequences. This is measured by reference to knowledge at the date of the alleged negligence, not with hindsight.”
73. Be that as it may, the medical evidence in this case, including that of the Defendants’ experts, is all the one way in respect of the phenomenon of nerve damage.
74. Dr. Sambrook, Dr. Hutchison, the neurologists, Mr. Beirne, the maxilliofacial surgeon and Professor Van Steenberghe, professor of the dental faculty in Louvain, all agree that any nerve which is traumatised can exhibit one or other of the following characteristics:-
(a) Numbness or reduced sensation
(b) Altered sensation
(c) Very occasionally, intractable neuropathic pain.
75. The mechanism for the severe pain is a distorted message sent to the brain either from damage to or incomplete healing or repair of the nerve in question.
76. Not one expert called in this case on either side however believed then or now that a warning about intractable neuropathic pain was or is necessary having regard to the remote nature of the risk. It is one in multiple thousands. Nonetheless, various experts did instance occasions where nerve damage with lasting consequences had occurred in the facial area which has a sensitive nerve system. The infra orbital nerve of the cheekbone is one such site where chronic neuropathic pain can occasionally result if that nerve is damaged. Equally it is known that the removal of a wisdom tooth can, in rare instances, produce a similar outcome if the alveolar nerve is damaged.
77. Dr. Beirne, one of the Defendant’s experts, further mentioned a case he was aware of where four lower wisdom teeth had become devitalised as a result of a bone graft where the surgeon had in fact stayed outside the 5mm zone between the apices of the teeth and the bone graft site which general and approved practice requires.
78. The extremely rare occurrence of chronic neuropathic pain as a consequence of nerve damage is in contrast with the other two possible consequences at (a) and (b) above which are more commonly encountered, although usually only as transient symptoms.
79. There is evidence from Mr. Hutchison in this case that the trigeminal nerve which supplies innervation to different parts of the skull and face is particularly sensitive. The alveolar nerve is one emanation which runs down the lower jaw and bifurcates at the premolar area of the mouth into the mental nerve, which exits the bone and supplies sensation to the lip and soft tissues in the vestibule between the lower teeth and the lower lip, and the incisive nerve which innervates the bone and teeth at the front of the lower mandible. (See Appendices).
80. It is quite clear that the procedure which Dr. Harris was initially proposing to undertake was one which might compromise one or both these nerves having regard to their location in the chin area. Dr Harris stated (B.9.p.151) that it was not possible to put in implants “without damaging the incisive nerves”. The same view was expressed in relation to bone grafting (B.9.p.154/5). Dr. Harris’s own letter to Mr. Geoghegan shows an awareness of the possibility of nerve damage in its references to the risk of numbness at both the chin and lip. This was, and could only be, nerve damage. Dr Harris himself mentioned cases where damage to the mental nerve had caused “prolonged pain”. (B.9.p.122)
81. Bearing in mind that the procedure which Dr. Harris was engaged was a relatively new procedure, I do not find it at all surprising that there is an absence of any other recorded case of chronic neuropathic pain in respect of either implants or bone grafts in the particular area of the chin. The procedure goes back to 1982. For a number of years grafts (required in a small number of cases) were taken from the iliac crest and only since 1989 from the chin. There was clearly in 1992 a retrievable archive of short duration only and obviously such an archive, insofar as it may be said to exist, must relate to cases where the procedure including bone grafting, was carried out in accordance with approved guidelines and procedures.
82. It seems to me that nerve damage must be seen as a “known complication” of this procedure be it implants per se, or bone grafts, in the chin area. The particular symptom of neuropathic pain is in a subdivision, not in a different species of risk or unrelated risk. It is foreseeable as a consequence of damaging nerves and certainly those nerves with which this case is concerned. Once that is established, the fact that the particular manifestation of the nerve damage is very remote and unusual seems to me immaterial from a legal point of view. It is within the range of what is known or can or should be known by the medical practitioner. By way of example, if it be generally known that, on rare occasions, a piece of coal may explode while burning in a grate, that “known complication” can hardly be said not to exist in respect of coal harvested from a new mine where such an event has not occurred over a fairly short period of time since that mine was opened. It will always remain a known possibility of a generic type.
(2) Obligation to Warn.
83. While the issue of quantum has been deferred to a later stage of this hearing, both the medical evidence I have heard in the context of liability and the Plaintiff’s own evidence satisfy me that the Plaintiff does have an extremely painful and hitherto intractable version of this nerve damage. He has a burning sensation at the mid line of his chin which, as the day progresses extends up his jaw on either side towards his ears. The condition is exacerbated by talking. He is frequently obliged to drink iced water and broken ice in an effort to get relief from his symptoms. He sometimes drinks too much gin in the evenings to deaden the pain. He has been around the world in a search for a cure, up to now without success.
84. None of the medical practitioners have to this point queried the genuineness of the Plaintiff’s condition which, the Plaintiff says, has destroyed his life.
85. The Plaintiff himself in the witness box was agitated and emotional when describing his difficulties and understandably somewhat obsessed about his condition. This is not intended as any criticism of Mr Geoghegan, who struck me as a decent and honourable person, but a person who has lost objectivity because of his ongoing symptoms. His condition merits the description of being severe, though clearly it is well short of the category which may include conditions such as paralysis, loss of a limb or reproductive function. The requirements of Walsh -v- Family Planning Services Limited are therefore met in the instant case.
86. Even though the views of the medical experts were all to the effect that no warning was necessary of the remote risk of neuropathic pain, the decision in Walsh must nonetheless bind me. I accordingly hold there was an obligation to warn.
Is the ‘Reasonable Patient’ test the preferable option?
87. The legal principles to be applied in cases of alleged medical negligence have been settled by the decision of the Supreme Court in Dunne (Infant) -v- National Maternity Hospital [1989] IR 91. In Dunne’s case they are detailed by Finlay C.J. at p. 109 of the report:-
“1. The true test for establishing negligence in diagnosis or treatment on the part of a medical practitione is whether he has been proved to be guilty of such failure as not medical practitioner of equal specialist or general status and skill would be guilty of if acting with ordinary care.
2. If the allegation of negligence against a medical practitioner is based on proof that he deviated from a general and approved practice, that will not establish negligence unless it is also proved that the course he did take was one which no medical practitioner of like specialisation and skill would have followed had he been taking the ordinary care required from a person of his qualifications.
3. If a medical practitioner charged with negligence defends his conduct by establishing that he followed a practice which was general, and which was approved of by his colleagues of similar specialisation and skill, he cannot escape liability if in reply the Plaintiff establishes that such practice has inherent defects which ought to be obvious to any person giving the matter due consideration.
4. An honest difference of opinion between doctors as to which is the better of two ways of treating a patient does not provide any ground for leaving a question to the jury as to whether a person who has followed one course rather than the other has been negligent.
5. It is not for a jury (of for a judge) to decide which of two alternative courses of treatment is in their (or his) opinion preferable, but their (or his) function is merely to decide whether the course of treatment followed, on the evidence, complied with the careful conduct of a medical practitioner of like specialisation and skill to that professed by the defendant.
6. If ther is an issue of fact, the determination of which is necessary for the decision as to whether a particular medical practice is or is not general and approved within the meaning of these principles, that issue must in a trial held with a jury be left to the determination of the jury.”
88. In applying the third principle from Dunne to the duty of disclosure considered in Walsh, Finlay C.J. invoked the exception in the following manner (p. 511):-
“It may be, certainly in relation to very clearly elective surgery, that the Court might more readily reach a conclusion that the extent of warning given or omitted contained inherent defects which ought to have been obvious to any person giving the matter due consideration than it could do in a case of complicated medical or surgical procedures.”
89. With considerable diffidence, I venture to suggest that this statement really only highlights the unreality of relating or contrasting the duty of disclosure to or with complicated medical treatment which is a separate and quite different function.
90. Beyond indicating that a lower threshold may be sufficient for the Court to intervene, the criteria for doing so are not further elaborated. The ease or otherwise of the Court’s task is hardly an appropriate marker for intervention.
91. Where the medical professional standard is adopted, subject to a caveat or saver, then, to me at least, it makes no great sense to oust from any meaningful role the views of the self-same medical practitioners as to the materiality of a risk or the need for a warning. Their views are received and relied upon in ordinary medical negligence cases. Who else can supply evidence of inherent defects? To substitute its own view, effectively in opposition to the experts on whose views, at least in the first instance, it purports to rely, the Court sets at nought the professional standard test and the result in the instant case is that the Defendant must be found to be in breach of duty when not a single expert from either side believes a warning to be necessary.
92. The Court has such power, for as Mr John Healy points out in his erudite “Medical Negligence: Common Law Perspectives” (1999) at p. 71:
“…. the courts have recognised the institutional reality that they retain at the very least a residual power to override expert opinion, even where that opinion unanimously supports the defendant’s propositions. The Irish Courts, considerably more pragmatic in this regard have repeatedly acknowledged this to be so.”
93. However, the author continues:
“A principle of this nature amounts to no more than reaffirmation of a power the courts already possess, indeed a power the courts are constitutionally obliged to exercise. In this context, the principle serves to remind the medical community that ultimately the rule of law applies to doctors as equally as it applies to solicitors or engineers, and that in any case the courts are entitled to hold liable a defendant whose adherence to general practise has been blind, lax, or inherently negligent .” (my emphasis)
94. This passage would suggest that very good reasons indeed should exist before the Court should act in this way. That these are the criteria for applying the saver is clear from the Supreme Court decision in Roche -v- Peilow (1986) ILRM 189 where the Court found that a professional practice (whereby solicitors failed to conduct pre-contract searches when advising purchasers with regard to the purchase of houses provided by a system of a building contract followed by a lease) contained such inherent defects that they ought to have been obvious to any person giving the matter due consideration.
95. At p. 197, Henchy, J. stated:-
“Conformity with the widely accepted practice of his colleagues will normally rebut an allegation of negligence against a professional man, for the degree of care which the law expects of him is no higher that that to be expected from an ordinary reasonable member of the profession or of the speciality in question. But there is an important exception to that rule of conduct. It was concisely put as follows by Walsh J. in O’Donovan -v- Cork County Council [1967] IR 173, at p. 193:
‘If there is a common practice which has inherent defects, which ought to be obvious to any person giving the matter due consideration, the fact that it is shown to have been widely and generally adopted over a period of time does not make the practice any the less negligent. Neglect of duty does not cease by repetition to be neglect of duty.’
The reason for that exception is that the duty imposed by the law rests on the standard to be expected from a reasonably careful member of the profession, and a person cannot be said to be acting reasonably if he automatically and mindlessly follows the practice of others when by taking thought he would have realised that the practice in question was fraught with peril for his client and was readily avoidable or remediable.” (my emphasis)
96. At p. 204, McCarthy, J. stated
“The possibility of there being a charge against the property upon which the builder was going to construct a house using the ’employers’ money for that purpose was a clear and present danger ; (my emphasis) it was the solicitors’ duty to guard against it.”
97. Elsewhere, Walsh, J. stated at p. 193
“It is clear from the evidence given by solicitors, including the Respondents in this case, that this particular risk was well known to them”
and (at p. 195)
“The consequences of the risk materialising could not be said to be unforeseeable when the evidence in this case indicates that it was a well known risk and the consequences were obvious if it should materialise.”
Roche -v- Peilow strongly suggests that the exception should only operate where a high onus is met and the defect, ignored or tolerated by the approved practice of a profession relates to an obvious risk or danger, which is in very marked contrast to the instant case. The exception is there to address an obvious lacuna in professional practice usually arising from a residual adherence to out-of-date ideas. It seems an inappropriate mechanism to find fault with medical practitioners for failing to warn of very remote risks which for that very quality cannot be regarded as obvious or ‘clear and present dangers’ even on due consideration. It is yet another reason to think that the third principle in Dunne, though suitable for medical treatment, is perhaps inappropriate in the distinctly different context of disclosure. One must surely conclude that the more remote the risk, the harder it is to judge any practice of not disclosing it to be ‘blind, lax or inherently negligent.’ The converse approach adopted in Walsh was justified by reference to the elective nature of the surgery, but that consideration, discussed later, is more appropriate to the issue of causation than any duty of disclosure, where the seriousness of the consequences and the frequency of the risk are the real concern.
98. The application of the reasonable patient test seems more logical in respect of disclosure. This would establish the proposition that, as a general principle, the patient has the right to know and the practitioner a duty to advise of all material risks associated with a proposed form of treatment. The Court must ultimately decide what is material. ‘Materiality’ includes consideration of both (a) the severity of the consequences and (b) statistical frequency of the risk. That both are critical is obvious because a risk may have serious consequences and yet historically or predictably be so rare as not to be regarded as significant by many people. For example, a tourist might be deterred from visiting a country where there had been an earthquake causing loss of life, but if told the event happened fifty years ago without repetition since, he might well wonder why his travel agent caused him unnecessary worry by mentioning it at all.
99. The reasonable man, entitled as he must be to full information of material risks, does not have impossible expectations nor does he seek to impose impossible standards. He does not invoke only the wisdom of hindsight if things go wrong. He must be taken as needing medical practitioners to deliver on their medical expertise without excessive restraint or gross limitation on their ability to do so.
100. The decision in Walsh effectively confines the test of materiality to severity of consequences only. This approach is best encapsulated in the memorable passage of McCarthy, J. when he stated (at p. 521):-
“… those concerned … if they knew of such a risk, however remote, have a duty to inform those so critically concerned with that risk. Remote percentages of risk lost their significance to those unfortunate enough to be 100% involved.”
101. However, the attractiveness of the observation should not occlude the possibility that at times a risk may become so remote, in relation at any rate to the less than most serious consequences, that a reasonable man may not regard it as material or significant. While such cases may be few in number, they do suggest that an absolute requirement of disclosure in every case is unduly onerous, and perhaps in the end counter productive if it needlessly deters patients from undergoing operations which are in their best interest to have.
102. As pointed out by Mr Healy (p. 99): “materiality is not a static concept”. If the assessment of materiality is to “abide a rule of reason”, any absolute requirement which ignores frequency seems much at variance with any such rule.
103. Each case it seems to me should be considered in the light of its own particular facts, evidence and circumstances to see if the reasonable patient in the Plaintiff’s position would have required a warning of the particular risk.
(3) CAUSATION
104. It is not sufficient to establish that a warning should have been given but was not given to entitle a plaintiff to recover damages. He must also establish that, had he been given a proper warning, he would have opted to forego the procedure.
105. Probably because of the finding that a warning, an adequate warning, had been given in Walsh -v- Family Planning Services , the Court did not consider in any detail the question of causation as an element in the duty of disclosure.
106. Finlay C.J. concluded his discussion on negligence in relation to the warning by stating at p. 512:-
“For this reason, I conclude that quite apart from any question of the Plaintiff having denied the giving of such a warning and, therefore, not being in a position to express any view, other than a hypothetical one, as to what he would have done if he had been given it, the warning accepted by the learned trial judge to have been given by Dr Sheehy-Skeffington, on this occasion, was sufficient, on the facts, to discharge her responsibility to exercise reasonable care .”
107. Mr Justice McCarthy stated at p. 521:-
“It does not automatically follow that the patient would not have undergone the operation despite being informed of the risk. The Plaintiff testified that if he had known he would not have undergone the procedures … it follows, in my judgment, that the Plaintiff has established his right to damages.”
108. Egan J. stated at p. 537:-
“The Plaintiff denied that he had received any warning from Dr Sheehy-Skeffington but his evidence was rejected in this regard. I cannot accept the proposition, however, that his wrongful denial precludes the Court from engaging in an examination of whether adequate warning was given to the Plaintiff. Neither do I consider it necessary that there should be proof by the Plaintiff that had the proper warning been given to him, he would not have submitted to the original operation. If he never, in fact, received a proper warning his answer to a question asking how it would have affected his attitude would necessarily be hypothetical and, unless it was by any unlikely chance in the negative, the Court would be entitled to come to the conclusion that the failure to give the advice was negligent and actionable.”
109. The views of Egan J. on this point appear to be at variance with established legal principles on causation and the Plaintiff accepts in the instant case that causation is an issue which this Court must address. It is not perhaps as simple an issue as McCarthy J. suggested. It is a very easy thing for a disappointed patient to say, in the aftermath of a procedure, as Mr Geoghegan has done, that he would not have undergone the operation had he been warned of the particular risk which came to pass. There may be many instances where the only evidence available to a Court is that of the patient and/or a spouse, one or both of whom may be prejudiced by bitterness and the wisdom of hindsight. It is a most unsatisfactory backdrop to the task which the Court must face in these cases.
110. As stated by Mr. White at p. 193 of “ Medical Negligence Actions ”:-
“In short, the plaintiff patient would hardly have sued for non-disclosure unless prepared to swear beyond contradiction that he would have foregone the therapy had he been properly advised of its consequences.”
111. These concerns prompted the United States Court of Appeals for the District of Columbia in Canterbury -v- Spence , (1972) 464 F 2D 772 and the Supreme Court of Canada in Reibl -v- Hughes , (1980) 114 DLR (3D) 1 to require that the issue of causal connection be determined upon an objective basis, i.e, for causal connection to be established the plaintiff must show that proper disclosure would have caused a reasonable person in the plaintiff’s position to decline the treatment in question because of revelation of the risks involved. This is by way of contrast to a subjective test where the Court endeavours to determine what the particular plaintiff in the particular case would have decided had a proper warning been given.
112. Robinson J. in delivering the opinion of the Court in Canterbury -v- Spence explained the preference for an objective test at p. 15:
“No more than breach of any other legal duty does non-fulfilment of the physician’s obligation to disclose alone establish liability to the patient. An unrevealed risk that should have been made known must materialise, for otherwise the omission, however unpardonable, is legally without consequence. Occurrence of the risk must be harmful to the patient, for negligence unrelated to injury is non-actionable. And, as in malpractice actions generally, there must be a causal relationship between the physician’s failure to adequately divulge and damage to the patient.
A causal connection exists when, but only when, disclosure of significant risks incidental to treatment would have resulted in a decision against it. The patient obviously has no complaint if he would have submitted to the therapy notwithstanding awareness that the risk was one of its perils. On the other hand, the very purpose of the disclosure rule is to protect the patient against consequences which, if known, he would have avoided by foregoing the treatment. The more difficult question is whether the factual issue on causality calls for an objective or a subjective determination.
It has been assumed that the issue is to be resolved according to whether the fact finder believes the patient’s testimony that he would not have agreed to the treatment if he had known of the danger which later ripened into injury. We think a technique which ties the factual conclusion on causation simply to the assessment of the patient’s credibility is unsatisfactory. To be sure, the objective of risk disclosure is preservation of the patient’s interest in intelligent self-choice on proposed treatment, a matter that the patient is free to decide for any reason that appeals to him. When, prior to commencement of therapy, the patient is sufficiently informed on risks and he exercises his choice, it may truly be said that he did exactly what he wanted to do. But when causality is explored at a post injury trial with a professedly uninformed patient, the question of whether he actually would have turned the treatment down if he had known the risks is purely hypothetical: “viewed from the point at which he had to decide, would the patient have decided differently had he known something he did not know?” And the answer which the patient supplies hardly represent more than a guess, perhaps tinged by the circumstances that the uncommunicated hazard has in fact materialised.
In our view, this matter of dealing with the issues on causation comes in second best. It places the physician in jeopardy of the patient’s hindsight and bitterness. It places the fact finder in the position of deciding whether a speculative answer to a hypothetical question is to be credited. This calls for a subjective determination solely on testimony of a patient witness shadowed by the occurrence of the undisclosed risk.
Better it is, we believe, to resolve the causality issue on an objective basis: in terms of what a prudent person in the patient’s position would have decided if suitably informed of all perils bearing significance. If adequate disclosure could reasonably be expected to have caused that person to decline the treatment because of the revelation of the kind of risk or danger that resulted in harm, causation is shown, but otherwise not. The patient’s testimony is relevant on that score of course but it would not threaten to dominate the findings. And since that testimony would probably be appraised congruently with the fact finder’s belief in its reasonableness, the case for a wholly objective standard for passing on causation is strengthened. Such a standard would in any event ease the fact finding process and better assure the truth as its product.”
In Reibl -v- Hughes , Laskin CJC, delivering the Judgment of the Canadian Supreme Court, defined the objective criterion of causal connection:-
“An alternative to the subjective test is an objective one, that is, what would a reasonable person in the patient’s position have done if there had been proper disclosure of attendant risks.”
113. In relation to the subjective test, he stated as follows at p. 15:-
“It could hardly be expected that the patient who was suing would admit that he would have agreed to have the surgery, even knowing all the accompanying risks. His suit would indicate that, having suffered serious disablement because of the surgery, he is convinced that he would not have permitted it if there had been proper disclosure of the risks, balanced by the risks of refusing the surgery. Yet, to apply a subjective test to causation would correlatively, put a premium on hindsight, even more of a premium than would be put on medical evidence in assessing causation by an objective standard.”
At p. 16 he stated:-
“The adoption of an objective standard does not mean that the issue of causation is completely in the hands of the surgeon. Merely because medical evidence establishes the reasonableness of a recommended operation does not mean that a reasonable person in the patient’s position would necessarily agree to it, if proper disclosure had been made of the risks attendant upon it, balanced by those against it. The patient’s particular situation and the degree to which the risks of surgery or no surgery are balanced would reduce the force, on an objective appraisal, of the surgeon’s recommendation. Admittedly, if the risk of foregoing the surgery would be considerably graver to a patient than the risks intendant upon it, the objective standard would favour exoneration of the surgeon who has not made the required disclosure. Since liability rests only in negligence, in a failure to disclose material risks, the issue of causation would be in the patient’s hands on a subjective test, and would, if his evidence was accepted, result inevitably in liability unless, of course, there was a finding that there was no breach of the duty of disclosure. In my view, therefore, the objective standard is the preferable one on the issue of causation.
In saying that the test is based on the decision that a reasonable person in the patient’s position would have made, I should make it clear that the patient’s particular concerns must also be reasonably based, otherwise, there would be more subjectivity than would be warranted under an objective test. Thus for example, fears which are not related to the material risks which should have been but were not disclosed would not be causative factors. However, economic considerations could reasonably go to causation where, for example, the loss of an eye as a result of non-disclosure of a material risk brings about the loss of a job for which good eyesight is required. In short, although account must be take of a patient’s particular position, a position which will vary with the patient, it must be objectively assessed in terms of reasonableness.”
114. However, the subjective approach has been adopted in Australia in Ellis -v- Wallsend District Hospital [1989] 17 NSWLR 553 and in two other Australian cases, Bustos -v- Hair Transplant Pty Limited & Anor (unreported judgment New South Wales Court of Appeal 15th April, 1997) and O’Brien -v- Wheeler (New South Wales unreported judgment 23rd May, 1997).
In Ellis -v- Wallsend District Hospital , Samuels J.A., in opting for the subjective test, set out the rationale as follows:-
“The subjective test was regarded in Reibl (in which Canterbury was applied) as ‘hypothetical and thus unreliable’ and, as Laskin C.J.C. observed (at p. 16) calculated to ‘put a premium on hindsight, even more of a premium than would be put on medical evidence is assessing causation by an objective standard’.
I do not myself find these objections to the subjective test persuasive. I respectfully agree with Cox J. in Gover -v- South Australia , (1985) 39 S.A.S.R. 543 when he said:-
“…. At any rate the basic causation principle governing actions in negligence plainly supports, in my opinion, the subjective test.” ”
115. He later went on:-
“It is, of course true that the patient’s evidence about what he or she would have done if told of certain risks may be coloured by the fact that the risks did in fact eventuate; but it is open to a Court to disbelieve evidence found to be tainted by hindsight: Manderson, ‘ Following Doctors Orders: Informed Consent in Australia’ (1988) 62 ALJ 430 at 434. Obviously, endeavouring to ascertain what the plaintiff’s response would have been to adequate information had it been conveyed at the appropriate time, a Court will be greatly assisted by evidence of the plaintiff’s temperament, the course of any prior treatment for the same or a like condition, the nature of the relationship between patient and doctor including pre-eminently, so far as it can be established, the degree of trust reposed in the doctor by the patient. The extent to which the procedure was elective or imposed by circumstantial exigency and the nature and degree of risk involved will all be matters of considerable importance: see Robertson, ‘Informed Consent to Medical Treatment’ (1981) 97 L.Q.R. 102 at 122.
Despite these practical difficulties, I agree with the learned Judge that the subjective test is the correct one to apply. It is supported by a persuasive authority and is consistent with the principle by which proof of causation is governed in other areas of the law of negligence. To the extent that there may be a choice open to be determined upon grounds of policy (there being no decision of any appellant Court in Australia upon the point), while there are difficulties inherent in both tests, I would more readily accept the threat of hindsight than adopt medical practice as the determinant. As Manderson (op cit at 434) points out the causation question, on the objective view:-
‘resolves itself into a consideration of whether reasonable persons would have refused treatment if they had known the information concealed from them. The answer must be that reasonable persons would have gone ahead with the proposed treatment despite the risks, if it was likely to be beneficial to their health. Yet how is the Court to determine whether medical risks are, in short, worth taking, except by asking the opinion of the medical profession?’ ”
In O’Brien -v- Wheeler , Mason, P. addressed the subjective test at p.6:-
“The test requires a Plaintiff who has proved that his or her doctor negligently failed to notify the patient of a particular risk of treatment to satisfy the Court that the Plaintiff would not have accepted the treatment had the warning been given.
Such an approach reflects the autonomy of the adult patient, who is regarded as having the right (if properly informed) to decide for himself or herself whether or not to embark on the procedure. An adult patient who is in a position to make a choice has the right to elect a surgical procedure which the hypothetical “reasonable” person in his or her shoes would avoid, and refuse a procedure which the hypothetical “reasonable” person in his or her shoes would embrace.”
116. Shortly afterwards he stated:-
“Normally a Plaintiff shoulders this burden by stating in evidence what he or she would have done. Of course, such evidence is hypothetical, but it comes from the person best placed to address the essentially subjective question. No doubt there may be cases where the Court can infer this element of causation from other evidence …”
117. In short, therefore, the subjective test caters for the idiosyncratic patient who does not conveniently fit into the box which contains “the reasonable patient” for reasons peculiar or particular to that individual patient.
118. In Britain, the subjective approach has also been preferred in Chatterton -v- Gerson , (1981) 1 QB 432 and Hills -v- Potter , (1984) 1 WLR(4). The problems of causation were well described by Mr Justice Hutchison in Smith -v- Barking HA [1995] 5 Med LR 285 as follows (p. 288):-
“There was some discussion as to whether the issue of causation should be approached on what was called the objective or the subjective basis – i.e. was the question to be resolved by deciding what a reasonable person in the Plaintiff’s position would have chosen to do or by deciding what the Plaintiff herself would have chosen to do. In support of the former approach I was referred to the Canadian authority of Reibl -v- Robert Hughes [1980] 2 SCR 880 and in support of the latter to the decision of Hirst J. in Hills -v- Potter [1984] 1 WLR 641. Both Counsel invited me to accept that in the end the matter must be one for a decision on a subjective basis. This must plainly as a matter of principle be right, because the question must be: If this Plaintiff had been given the advice that she should have been given, would she have decided to undergo the operation or not?
However, there is a peculiar difficulty involved in this sort of case – not least for the Plaintiff herself – in giving, after the adverse outcome of the operation is known, reliable answers as to what she would have decided before the operation had she been given proper advice as to the risks inherent in it. Accordingly, it would, in my judgment, be right in the ordinary case to give particular weight to the objective assessment. If everything points to the fact that a reasonable Plaintiff, properly informed, would have assented to the operation, the assertion from the witness box, made after the adverse outcome as known, in a wholly artificial situation and in the knowledge that the outcome of the case depends upon that assertion being maintained, does not carry great weight unless there are extraneous or additional factors to substantiate it. By extraneous or additional factors I mean, and I am not doing more than giving examples, religious or some other firmly held convictions: particular social or domestic considerations justifying a decision not in accordance with what, objectively seems the right one: assertions in the immediate aftermath of the operation made in a context other than that of a possible claim for damages: in other words, some particular factor that would suggest that the Plaintiff had grounds for not doing what a reasonable person in her situation might be expected to have done. Of course, the less confidently the judge reaches the conclusion as to what objectively the reasonable patient might be expected to have decided, the more readily will he be persuaded by her subjective evidence.”
119. I would very much agree with these sentiments except to say that in relation to the last sentence in the quoted passage, the converse is surely preferable given the risks of prejudice and hindsight. It seems to this Court that both approaches are valuable in different ways and that both should be considered. In the first instance it seems to me that the Court should consider the problem from an objective point of view. What would a reasonable person, properly informed, have done in the Plaintiff’s position? This is the yardstick against which the particular plaintiff’s assertion must be tested.
“In the Plaintiff’s position” can be taken as meaning the Plaintiff’s age, pre-existing health, family and financial circumstances, the nature of the surgery – in short, anything that can be objectively assessed, though personal to the Plaintiff.
120. Purely subjective factors would include not only the matters referred by Hutchison J. in Smith -v- Barking , (which may overlap to some degree) but also the dialogue between the particular patient and the medical practitioner, information to be gleaned from contemporaneous notes or correspondence, admissions to third parties (particularly contemporaneous admissions), and, perhaps most importantly, evidence of the actual conduct of the patient prior to surgery, given that actions generally speak louder than words.
121. There may be many instances where there is a shortfall of subjective material or information in which case the Court will have to decide a causation issue on its own best estimate from the evidence of what a reasonable person would have done in the particular circumstances. That is another good reason for starting with the objective test.
122. However, it seems to me that any objective test must sometimes yield to a subjective test when, but only when, credible evidence, and not necessarily that of the Plaintiff, in the particular case so demands. While obviously the Court must accord due deference to the testimony both of the patient and the medical practitioner, the cases already cited highlight the difficulties each may have in providing an account on which the Court can safely or absolutely rely. Wherever possible, the Court should look elsewhere for credible confirmation. If a reliable picture in fact then emerges, the Court can act on it to reach a conclusion one way or the other. If this dual and combined approach smacks of pragmatism so be it. It is in my view well justified if it achieves a better result in terms of deciding what probably would have occurred. At the end of the day it seems to me that the different approaches are more about methodology than any legal principle. It is an exercise in “fact construction”. In any such hypothetical though necessary exercise, there are dangers in dogmatically adopting one approach to the exclusion of the other, and certain aides to analysis would be forsaken by doing so.
123. In determining what a reasonable person would do, it seems to me that the views of medical practitioners as to the statistical likelihood of the risk occurring, are extremely important. A point must come where on medical evidence a risk is so remote that a reasonable person would be unlikely to be deterred by it. This is the evidence of ordinary everyday life where people make journeys by air, sea and road, conscious of a small but nonetheless acceptable level of risk. Indeed, I would guess that any one of the forms of travel mentioned might contain statistically more proximate or serious risk than that identified in the instant case.
124. Insofar as elective surgery is concerned, I agree with the following passage contained in Mr. John White’s “Medical Negligence Actions ” at p. 190:-
“’Elective’ in this context is a descriptive term of little value. Moreover, since what is at issue is the plaintiff’s entitlement to know – to make his own informed decisions – the ‘elective’ nature of the therapy involved can be of little significance in determining what the duty of care with regard to disclosure of adverse risks required in the circumstances. Where the ‘elective’ nature of the therapy becomes of major significance is in the context of establishing causal connection between an established negligent failure to disclose and the plaintiff’s decision to undergo the therapy. In the latter context, the option given by the ‘elective’ nature of the therapy will be of significance as demonstrating that a reasonable patient in the plaintiff’s position might well have decided to forego the therapy when he had a real choice in the matter.”
125. This is surely where “elective” significance lies, ie, in causation, rather than the duty to inform. Further, it is obvious common sense to hold that a person may forego surgery when he has a real choice in the matter.
126. However, even in making a decision as to whether or not to undergo elective surgery, the reasonable man, in my view, would be greatly influenced by the statistical likelihood of the particular adverse consequence ever taking place. If the risk is virtually off the spectrum, then I believe a reasonable man might accept or disregard such a risk where it is not in the more serious category and when he has regard to the perceived benefits attaching to the proposed procedure.
127. In the context of any warning he was obliged to give about neuropathic pain, Dr Harris would have told such a patient that the risk in question was extremely remote, perhaps one in multiples of thousands, and, while some damage to nerves might be involved in the procedure, chronic neuropathic pain had never yet been known to occur either from the implants or at the bone graft site as a complication of this particular procedure.
128. A reasonable patient would then place in the balance in making any decision the benefits associated with the procedure. In Mr Geoghegan’s case, the surgery was undoubtedly elective, but it had both a cosmetic and functional component. From the cosmetic point of view, the proposed implants would have improved the appearance of his teeth and preserved his jaw profile. The evidence suggests that lack of teeth is associated with resorbtion of bone, or loss of bone through thinning which, over the years, produces the sunken-cheek appearance associated with elderly people in the past. From a functional point of view, Mr Geoghegan could look forward to dentition which was more secure in his mouth than a denture, improved capacity to chew and masticate food and the provision of additional support for his existing teeth. These are very real and tangible benefits, lest it be supposed that elective surgery is an option to be declined at the slightest suggestion of a remote risk or danger. I am satisfied in the instant case that all of these benefits were conveyed to Mr Geoghegan by Dr Harris both through the video and brochure and in the course of their two consultations.
129. Commencing with the objective test, it seems to me that had a proper warning been given by the Defendant to a reasonable patient in Mr Geoghegan’s position, such a reasonable patient was more likely, for the reasons stated, to have proceeded with this operation. However, as a credible and reliable picture emerges overall on analysing the evidence particular to this case, the issue can and must be resolved by reference to the subjective test of what Mr. Geoghegan himself, again as a matter of probability, would have done.
130. Mr Geoghegan struck me as a man haunted by pain and somewhat overwhelmed by his condition. As previously mentioned, he has been around the globe in search of both a cure and for the purpose of marshalling expert witnesses for his case. He has been to California where, in the context of a psychological evaluation, he informed doctors that he harboured feelings of hatred towards the Defendant because of what had happened. In Mr Geoghegan’s view, Dr Harris should have done the honourable thing and admitted to having gone too close to the apices of his teeth when taking the bone graft. Dr Harris, it must be said, adamantly denies that he did so.
131. Further, Mr Geoghegan admits that, in the immediate post-operative period, he wanted to stop Dr. Harris from carrying out this kind of operation ever again. He also indicated to Dr O’Grady that he would make Dr Harris pay for what he had done. He declined to pay his bill for the Blackrock Clinic. He commenced to follow medical negligence cases in the newspapers and indeed, on one occasion wrote to a particular Plaintiff who was suing a dentist to offer his assistance. These are very good reasons for the Court to be sceptical of the Plaintiff’s assertions made now as to what he would have done then.
132. I imagine the Mr Geoghegan who attended Dr Harris prior to his operation in 1992 was a very different person from the witness in Court, free as he was at the time of the pain shortly to dominate his personal life as a result of this procedure. There is nothing in the material before this Court to indicate that in 1992 he was hypersensitive, or unusually cautious or the kind of man who would back away at the mention of a remote risk.
133. Mr. Geoghegan’s conduct and behaviour in 1992 speak more eloquently than any oral testimony. He was keen to undergo a cosmetic procedure because he had neglected his teeth over a period of years. He was well aware of all the benefits to be gained. He was given a video and brochure by Dr Harris after their first meeting, but did not look at either until the evening prior to the operation and only then at Dr. Harris’ insistence. He did not adhere to the protocol which Dr Harris followed by way of preparation for the surgery. Dr Harris had to chase him down to come in to his surgery for a second consultation and threaten to cancel the operation if he failed to do so. Mr Geoghegan had refused one request to come in on the 21st June, 1992, because he felt he had been over things with Dr Harris and was “well aware of what was going on.” On the occasion of the second meeting, Dr Harris gave to Mr Geoghegan a letter intended to be read before the operation which addressed certain possible complications, including complications of nerve damage. Hard as it is to credit, the Plaintiff never read the letter. Nothing could be more revealing as to his mindset. I conclude he was simply so busy throughout the pre-op period and had his mind so well made up to proceed that he was not concerned in any real way with detail.
134. Mr Cooney characterised Mr Geoghegan’s approach to the surgery as “casual” and “cavalier”. I think that is greatly overstating the position, but I am satisfied that Mr Geoghegan’s conduct clearly suggests that he was not going to be put off having his operation because of some very remote risk when balanced against what he saw or perceived as the benefits the procedure would bring.
135. I therefore find against the Plaintiff on the issue of causation.
(4) Misrepresentation
136. The Plaintiff has stated that he was assured by Dr Harris that there would be “no pain, no pain whatsoever” associated with this procedure.
137. This is vehemently denied by Dr Harris, who has explained that some pain is inescapable following on a procedure of this nature. He says he never told Mr Geoghegan that there would be “no pain whatsoever”, nor was it ever part of his practise to make any such assertion to a patient. I find Dr Harris’s evidence on this specific point to be more credible, not least because the Plaintiff gave a somewhat different account to his own expert, Dr Vaughan, telling him that Dr. Harris had stated it “would not be accompanied by much pain”. Further, the phrase “no pain whatsoever” is uttered by a patient on the video to describe her experience of the procedure and I cannot avoid thinking that the Plaintiff unconsciously picked up the phrase from this source.
138. However, that said, I do not think that my conclusion carries with it any connotations of the sort suggested by Mr Cooney in his closing submission to the effect that the Plaintiff can hardly pursue a claim based in negligence for failure to disclose if in fact his case in reality is one of misrepresentation.
I should say that any such representation, even if it was made, would have to be seen and understood as limited to the context of the procedure itself. It had nothing to do with the long term extremely unusual condition which the Plaintiff suffered as a result of damage to his incisive nerve.
139. In short, I do not think the resolution of this specific allegation of fact against Mr Geoghegan can in any way affect the obligation of the Court to consider the question of the requirement for an adequate warning and to consider further whether, if such a warning had been given, Mr Geoghegan would nonetheless have undergone his operation
(5) The Inquisitive Patient
140. Mr. Trainor on behalf of the Plaintiff submits that, quite apart from a medical practitioner’s obligation to offer information concerning proposed treatment, a patient is entitled to full and comprehensive information when he specifically asks for advice. He referred to the following passage in ” Medical Negligence Actions ” by Mr. White at par. 9.3.01 where he says as follows:-
“There is, it is submitted, no doubt but that, when a medical practitioner is directly questioned by his patient concerning the risks associated with the proposed therapy, he must give a direct and full answer to the patient’s questions unless he can rely upon a compelling therapeutic privilege; and the scope of the operation of such privilege is necessarily strictly limited in the face of a direct request for information by the plaintiff.”
In Sidaway -v- Bethlem Royal Hospital Governors & Ors. , (1985) 1 All ER 643, various members of the Court expressed their views in relation to the “inquisitive patient” as follows:-
“No doubt, if the patient in fact manifested this attitude by means of questioning, the doctor would tell him whatever it was the patient wanted to know.” (Diplock L.J. at p. 659)
And:-
“I should perhaps add at this point, although the issue does not strictly arise in this appeal, that, when questioned specifically by a patient of apparently sound mind about risks involved in a particular treatment proposed, the doctor’s duty must, in my opinion, be to answer both truthfully and as fully as the questioner requires.” (Per Bridge L.J. at p. 661).
And:-
“Mrs. Sidaway could have asked questions. If she had done so, she could and should have been informed that there was an aggregate risk of between 1% and 2% of some damage either to the spinal cord or to a nerve route resulting in injury which might be vary from irritation to paralysis…. If a patient knows that a major operation may well entail serious consequences, the patient cannot complain of lack of information unless the patient’s ask in vain for more information.” (Templeman L.J. at p. 664).
141. These views receive support in Jackson & Powell ” Professional Negligence ” (3rd Edition) (1992) at par. 6.128 as follows:-
“Where however the patient does ask specific questions, generally speaking he is entitled to accurate answers, so far as the doctor is able to give them.”
142. Mr. Trainor submits that Mr. Geoghegan expressed a particular concern about pain connected with the bone graft procedure, and thus, by implication, about any sequelae also.
143. However, on further analysis the assertion appears to be based on evidence given at the trial to the effect that Mr. Geoghegan in the course of one of the two preoperative visits made a query about the possibility of pain arising from the procedure along the lines of “… Dr. Harris that sounds very painful” at a time when Dr. Harris was explaining that the procedure would involve a bone graft from the chin. However, as Dr. Harris has told this Court that it never occurred to him that there could be long term neuropathic pain as a result of any part of the procedure, that evidence alone really precludes the possibility of any specific question in response to which any meaningful reply by Dr. Harris could have been given in respect of chronic neuropathic pain associated with the particular procedure.
144. I do not believe Mr. Geoghegan directed any question to Dr. Harris about the possibility of continuing or long term pain. I am further satisfied that any mention of pain was in the context of the procedure itself and its immediate aftermath.
145. Mr. Geoghegan admits that he did expect there would be some discomfort, “a bit of pain, a bit of a sting in his face for maybe a few days, for which he would take some pain killers and then the thing would be gone”. He would have had no problem with that type of sequelae, but “the idea of aggressive pain or anything like that just turned him off”.
146. As far as Dr. Harris is concerned, his recollection is to the effect that he would have told the Plaintiff that there could be some pain and discomfort from the procedure, particularly in the first 48 hours, but that in his experience that could be well controlled with analgesics and that after a period of two weeks it should all have settled.
147. It is further submitted on behalf of Mr. Geoghegan that the Plaintiff was particularly conscious of any unusual complications that the procedure might entail for him. This arose because his brother had some time before hand died as a result of a complication which occurred subsequent to a bypass operation at the Blackrock Clinic. His brother had been advised of a 2% risk with the procedure. Had it been a 3% risk, he felt his brother would not have undergone the procedure. Again, I can see no correlation between this concern and any possibility of chronic neuropathic pain.
148. Finally, it is suggested that particular significance should be attached to the evidence given by Mrs. Geoghegan. She testified that she put it to Dr. Harris during the course of a telephone call after the operation that he had told her husband that this was a painless procedure, whereas he was in dreadful pain. She says that Dr. Harris replied “It is most unusual, I have never known it to happen before”, or words to similar effect. She was not subject to cross-examination on this conversation, but I do not see this exchange establishing anything more than Dr. Harris’s surprise at the turn of events in the aftermath of the operation.
149. Specifically, I do not see it as supporting the allegation of a misrepresentation by Dr. Harris, nor do I see it having any particular significance in the context of the supposed “inquisitive patient”.
150. Having regard to the heavy obligations imposed on medical practitioners by Walsh -v- Family Planning Services , it seems to me that any real consideration of the “inquisitive patient” is subsumed by the onerous obligations of disclosure set down by the Supreme Court. Current Irish law requires that the patient be informed of any material risk, whether he inquires or not, regardless of its infrequency.
151. From a perusal of the authorities, it appears to this Court that the “inquisitive patient” doctrine, if such it can be called, arose in England because of the limited duties of disclosure imposed on medical practitioners by Bolam -v- Friern Hospital Management Committee , (1957) 2 All E.R. 872.
152. As Lord Scarman stated in Sidaway (at p. 881) the Bolam principle may be described in the following terms:-
“The Bolam principle may be formulated as a rule that a doctor is not negligent if he acts in accordance with the practice accepted at the time as proper by a responsible body of medical opinion even though other doctors adopt a different practice. In short, the law imposes the duty of care; but the standard of care is a matter of medical judgment.”
Sidaway added the refinement that a trial Judge might, in certain circumstances, come to the conclusion that disclosure of a particular risk was so obviously necessary to an informed choice on the part of the patient that no reasonably prudent medical practitioner would fail to make it.
153. In conclusion, I am not satisfied the Plaintiff has made out any collateral or alternative case that he asked a question which could reasonably be construed as relating to ongoing pain, or any question which required disclosure to him of the risk of chronic neuropathic pain.
SUMMARY of Judgment of Mr Justice Kearns delivered the 21st day of June, 2000.
156. This part of the judgment deals exclusively with the issue of the medical practitioner’s duty of disclosure of risks attending operative procedures.
157. The Court has received submissions of fact from the parties in relation to the separate issue of fact relating to the location of a bone graft which was taken from the Plaintiff’s chin in the course of the procedure as a result of which the Plaintiff suffered damage to the incisive nerve or nerves at the front of his chin which has left him with a condition of severe pain at the mid line of his chin known as chronic neuropathic pain. A judgment on that issue will be given at a later date and no order of any sort will be drawn up prior to that time.
158. It is the view of this Court that current Irish law imposes the following obligations on a medical practitioner in relation to disclosure of risks as follows-
(a) The requirement on a medical practitioner is to give a warning of any material risk which is a known or foreseeable complication of an operative procedure properly carried out.
(b) The test of materiality in elective surgery is to inquire only if there is any risk, however exceptional or remote, of grave consequences involving severe pain stretching for an appreciable time into the future.
159. That being so, the questions which the Court has to address in the instant case are as follows:-
(i) Was chronic neuropathic pain a known or foreseeable consequence when placing an implant in the lower premolar area or when taking a bone graft from the Plaintiff’s chin?
(ii) If so, was there a requirement to warn, regardless of the remoteness of the risk and the views of the medical experts in the case that a warning was not required?
(iii) Had an appropriate warning been given, would the Plaintiff nonetheless, as a matter of probability, have elected to undergo the procedure?
(iv) Insofar as the Plaintiff has made an allegation of misrepresentation against Dr Harris to the effect that he said there would be “no pain, no pain whatsoever” associated with the procedure, thereby precluded from pursuing a case of negligence for breach of duty of disclosure if the Court finds as a fact that no such statement was made by the Defendant?
(v) Was the Plaintiff in the category of “inquisitive patient” to whom a special duty was owed?
160. In short, I have found the answers to these questions to be as follows:-
(1) Nerve damage is a known and foreseeable complication of both the implant and bone graft. Chronic neuropathic pain, though unusual and rare, is a type of such nerve damage, being in a subdivision of that risk, rather than a separate species of risk. It is therefore a “known complication”.
(2) Having regard to the decision of the Supreme Court in Walsh -v- Family Planning Services Limited & Ors [1992] 1 IR 496, this Court is obliged to hold that a warning of this risk was required, despite the extremely remote nature of the risk and the evidence of the medical experts that a warning was not necessary.
161. Different legal principles were applied in the different judgments of the Supreme Court in Walsh -v- Family Planning Services to arrive at its conclusions.
162. This Court is of the view that the ‘reasonable patient’ test, which requires full disclosure of all material risks incident to proposed treatment, is the preferable test to adopt, so that the patient, thus informed, rather than the doctor, makes the real choice as to whether treatment is to be carried out. It is the view of this Court that assessment of the duty of disclosure on this basis is more logical than the professional standard test, whereby the Court adopts the standard of the medical profession, yet reserves the right to override the views of the medical experts as and when it sees fit.
(3) The Court is of the view that, even had an appropriate warning been given to the Plaintiff, he would nonetheless, as a matter of probability, have elected to undergo the procedure.
163. Different jurisdictions adopt different approaches to causation. In some jurisdictions, the test is to inquire whether the reasonable patient, in the Plaintiff’s position, would have elected to undergo or decline the procedure (the objective test). In other jurisdictions, the matter is determined by reference to the Courts best estimate of what the particular Plaintiff in the instant case would have done (the subjective test).
164. It is the opinion of this Court that this problem of retrospective “fact construction” demands a pragmatic approach, whereby the Court first considers what a reasonable person in the Plaintiff’s position would have done. That will usually determine the issue. However, that approach must at times yield to a subjective approach where clear and convincing evidence exists from which the Court can safely and reliably infer what the particular patient would have decided. The strength and credibility of the evidence determine whether or not a subjective test can apply in a particular case.
165. In the instant case, such evidence is available and, in the opinion of this Court, it points in a coercive way to the conclusion first stated above, namely, that Mr Geoghegan, even if properly warned, was more likely to have proceeded with his operation. On this issue, therefore, the Plaintiff fails on the requirement of causation. I would add that if an objective test applied, I would have reached the same conclusion.
(4) The Court finds as a fact that Dr Harris did not say there would be “no pain, no pain whatsoever” associated with the procedure.
166. While such an observation was made by a patient on a video which was given to Mr Geoghegan prior to his operation, I do not believe it could be construed as a representation or as relevant to the Plaintiff’s condition because the expression is clearly limited to the immediate procedure itself. The risk which eventuated in this case was of a totally different character in the sense it is a long term enduring consequence. Equally, I do not believe the Plaintiff is precluded from pursuing his claim in negligence for breach of the duty of disclosure despite the finding that Dr Harris did not make the particular statement or representation.
(5) The Court does not believe that any category of “inquisitive patient” exists in Irish law because of the onerous obligations imposed on medical practitioners by Walsh -v- Family Planning Services Limited which obliges medical practitioners to warn of all risks with severe consequences, regardless of their infrequency.
167. While obviously a doctor must answer as fully as he can and to the best of his knowledge and ability any questions a patient may ask, the issue essentially is subsumed in the wider obligation imposed on medical practitioners by the Supreme Court decision. In any event, I do not believe Mr Geoghegan asked any specific questions which would demand a warning about the possibility of chronic neuropathic pain.
Philp -v- Ryan & Anor
[2004] IESC 105 Supreme Court Fennelly J.
The Court has already pronounced its decision on this appeal. It has increased the damages awarded to the Plaintiff/Respondent by Peart J in the High Court from the sum of €45,000 to €100,000.
The action was one for professional negligence against both defendants arising from the first-named defendant’s failure to diagnose that the plaintiff was suffering from prostate cancer and not prostatitis as he found.
Liability was in issue in the High Court, but the appeal by the defendants was limited to the question of damages. The plaintiff lodged a cross appeal claiming that the damages awarded were inadequate. Two points were made in the cross appeal:
· That no damages were awarded for possible loss of life expectancy;
· That aggravated damages should have been awarded as a result of the conduct of the defence to the claim.
On the 26th June 2001 plaintiff was admitted to the Bon Secours Hospital in Cork, having been referred to that hospital by his general practitioner. He complained that he had been unable to pass urine since the previous day and of abdominal pain. Pathology reports in respect of urine samples indicated that there was “no bacterial growth” and a seriously elevated PSA level of 168. The first-named defendant diagnosed acute prostatitis. The expert evidence for the plaintiff at the trial was to the effect that, based on his clinical symptoms, the pathology reports, and other factors this could not have been a case of acute prostatitis. In fact, the test results suggested that the plaintiff almost certainly had cancer which had spread – metastased – outside the prostate into other parts of the body.
This view of the matter was not seriously disputed by the defendants’ experts. At this stage, of course, there is no issue but that the plaintiff’s condition was disastrously misdiagnosed due to the negligence of the defendants. However, it was also tragically clear that the plaintiff’s cancer was, in any event, already at an advanced stage when he first presented to the first-named defendant. The real issue on this aspect of the appeal, therefore, was the extent to which the plaintiff was entitled to be compensated in damages for misdiagnosis, where he was never going to recover fully. Was the plaintiff entitled to recover damages for being deprived, as a result of not being informed of it, of the opportunity to consider possible treatment for his cancer?
It is material, firstly, to set out the principal findings of the learned trial judge on the negligence issue. The learned trial judge held that the first-named defendant was negligent in diagnosing prostatitis to the exclusion of any other possibility. Consequently, he did not tell the plaintiff that he was suffering from cancer or arrange any other necessary tests. The negligence of the first-named defendant resulted in the plaintiff not becoming aware that he had prostate cancer until eight months later than he should have. Specifically, he was deprived of an opportunity to have a discussion between July 2001 and March 2002 with the first-named defendant, or indeed any other medical person about his disease and the alternatives for treating him.
The arrival of the news in March 2002 that he was suffering from advanced prostate cancer was a great shock to the plaintiff, as was the news that this diagnosis could have been made in July 2001, but had been missed by the first-named defendant.
The learned trial judge found that the plaintiff had reasonable grounds for believing that his life expectancy was less than it would have been had the correct diagnosis been made in July 2001, and that this caused him great upset.
Turning to the question of damages, the learned trial judge said:
“I have no doubt that the plaintiff has suffered great anguish and distress on account of the knowledge that he could have been diagnosed sooner. All the academic medical debate about the advantages and disadvantages of immediate versus deferred treatment, are of little comfort to the plaintiff, who, in my view perfectly reasonably, has reasonable grounds for fearing that his life has been shortened.”
When he came to quantify damages, he said:
“As far as damages are concerned, I propose to award a single sum to take account of the distress caused to the plaintiff as a result of the negligence of the first named defendant. The plaintiff’s evidence was that on receiving the letter on 10th March 2002 he panicked, and later he was very angry and felt let down about the missed diagnosis, and he was of the view that what he now faces was very different in terms of survival from it might have been. Of course, whether his life has been shortened is a matter perhaps we will never know” (Emphasis added).
The plaintiff did not, therefore, recover damages for loss of life expectancy. It was contended, on his behalf that, if his cancer had been correctly diagnosed in the summer of 2001, he would have been advised of the various treatment options that would have been open to him. The principal option would have been hormone treatment. While this treatment was by no means assured of success and could be accompanied by undesirable side effects such as impotence, there was a well-established professional view that life could be prolonged to a significant degree.
The learned trial judge conducted a meticulously detailed analysis of the expert evidence given before him and of the professional literature on this question. His conclusions were that:
• there are two well respected schools of thought within the medical profession as to the pros and cons in general of immediate versus deferred hormone treatment in cases of prostate cancer, and that it is not negligent to treat a patient in accordance with either;
• however, it is more likely than not that in relation to this particular plaintiff’s disease as of July 2001 that had the correct diagnosis been made, the plaintiff would have had a full discussion with his treating consultant when the advantages and disadvantages of each method of treatment would have been explained in a way which the plaintiff could understand, and the plaintiff would have been able to participate in the decision-making process regarding his treatment and future, and that in the circumstances of this case he was deprived of that opportunity;
• if the plaintiff had, in consultation with his treating consultant, opted for a deferral of hormone treatment until the disease had progressed, the plaintiff would nevertheless have been monitored closely. He would in other words have been kept under constant observation in order to see how the disease was progressing;
• it was not reasonable, on the evidence, to assume that the delay of eight months in the correct diagnosis had had no adverse impact on the plaintiff’s life expectancy and quality of life, and it is not reasonable for the first-named defendant to say that by not knowing that he had cancer, he was better off in the sense that he could go about his life during that eight months free of the worry of knowing that he had a serious condition. That would be to deny the plaintiff his basic right to be informed about a serious matter regarding his health, and his right to plan his future in the light of that knowledge.
On the balance of probabilities, the learned trial judge was of the view that, having been deprived of an opportunity of considering having immediate or fairly immediate hormone treatment in the summer of 2001, a reasonable consequence of that was that the plaintiff had suffered distress by having a reasonable belief that his life had been shortened by anything from 8 months to two years, and that on the evidence there was a reasonable basis for that belief. Based on these considerations, he decided to award a single sum to take account of the anger and distress suffered by the plaintiff.
However, he did not award any damages for the fact that the plaintiff, not having been informed of his condition in June 2001, was deprived of the opportunity of beneficial treatment. In particular, he did not award any damages for the loss of opportunity to be advised of treatment which might have had the effect of prolonging his life, even by a short period.
This is not to say that the learned trial judge did not consider this aspect of the claim. On the contrary, he discussed it with elaborate care and set out the competing views very fully.
Firstly, he referred to the evidence of the plaintiff’s expert witness, Dr Shah, to the effect that there was “a definite benefit for early therapy in patients who present with prostate cancer.” He thought that the “critical issue related to diagnosis at earliest possible opportunity.” He was of the opinion that the “advantage of early therapy is somewhere between eight months and three years.” The treatment postulated was hormone therapy. Dr Shah relied on a study of 1997 by the Medical Research Council in the UK. There was, sadly, no question of the plaintiff being completely cured. It was a question of whether his life could have been prolonged. This view was supported by the other medical expert called for the plaintiff, Dr Hardman.
The evidence of Mr Denis Murphy, Consultant Urologist called on behalf of the Appellants was that it was better to defer hormone treatment. He said that there was a very broad spectrum of opinion as to whether hormone treatment should be initiated immediately on diagnosis. He did not think the plaintiff would have had any better prognosis if he had been diagnosed earlier.
Referring to this evidence and to the conflicting evidence in what he called the “academic debate” about the merits of earlier hormone treatment, the learned trial judge said:
“What is beyond any doubt is that there are two respectable schools of medical opinion in relation to a general question as to whether it is better to hormonally treat a patient as soon as a diagnosis of localized prostate cancer has been made, or whether it is more beneficial to the patient to wait until that disease has progressed to other parts of the body, or indeed whether it is better to wait beyond that until the patient has actually developed symptoms.”
He posed the following question:
“But what is important to deal with is whether, by reference to the studies and material and the evidence adduced in relation to this matter, it is on the balance of probabilities likely that this particular plaintiff, Mr. Philp, given his particular characteristics of disease in July 2001, has had his life shortened by his treatment being delayed until March 2002, resulting from the missed diagnosis in July 2001, or is Mr Ryan on the balance of probabilities correct when he submits that he would, according to the school of thought to which he adheres, have been correct or justified in any event to have deferred hormone treatment until March 2002 and without any adverse consequences for the plaintiff as far as life expectancy is concerned.” (emphasis added).
At one point, the learned trial judge appeared to lean in favour of the plaintiff’s evidence, when he said:
“I believe there is ample support for the plaintiff’s belief that in all probability he, given his specific condition, at least had a more than 50% possibility that immediate hormone treatment in July 2001 would have been beneficial. Such treatment would have to have been discussed with the plaintiff, and I believe that if Mr Ryan had failed to discuss these options with the plaintiff in July 2001, he would have been in breach of his duty of care. I am not going so far as to say that if Mr Ryan recommended deferred treatment to the plaintiff, and the plaintiff took that advice, that Mr Ryan would be negligent in so recommending. I am simply pointing to the need to have the options clearly placed before Mr Ryan so that an informed decision could be made by the plaintiff in relation to the options. It is always open to a patient to not take advice from his doctor once he has been fully informed as to all relevant considerations – especially in a situation such as the plaintiff’s where there is no unanimity in medical opinion as to the correct course of treatment.”
However, in the final analysis, he did not award damages for this aspect of the claim. His approach appears from the following:
“I cannot make a definitive conclusion in relation to whether his life has been shortened, or by how long, simply because the whole question is the subject of such debate, as I have shown, but I can conclude that on the balance of probabilities, the fear that his life has been shortened is a reasonable fear, and the distress caused to the plaintiff in that regard is reasonable, and for which he entitled to be compensated.”
It must be recorded, of course, that this issue comes before the court only by way of cross appeal. The appeal has been taken to this court not by the plaintiff but by the defendants. However, the court was quite satisfied that the appeal of the defendants on the ground that the damages were excessive was without merit. The award of €45,000 was amply justified by the findings of the learned trial judge regarding the real anguish and distress suffered by the plaintiff. Furthermore, I fully agree with the judgment of McCracken J that an award of aggravated damages should have been made. The failure of the defendants’ solicitors to inform the plaintiff’s solicitors that the first-named the defendant had falsified the clinical note upon which they had placed such heavy reliance in pre-trial procedures was reprehensible in the highest degree. This behaviour was calculated to deceive the plaintiff, his advisers and the court on a material matter. Regrettably the defendants made a deliberate decision not to correct the false impression they had earlier conveyed to the plaintiff that there would be evidence supported by a genuine contemporaneous note that the plaintiff had been advised to have a further test carried out.
It remains only to deal with the cross appeal relating to the failure of the learned trial judge to award damages for possible or probable loss of life expectancy. The cross appeal alleges that it was wrong not to make an award of damages under this heading once it had been found that it would not be reasonable to assume that the delay of some eight months in making the correct diagnosis had no adverse effect on the plaintiff’s life expectancy.
The learned trial judge appears to have posed a test of probability of success on the Appellant’s entitlement to damages for loss of the opportunity to have hormone treatment. Damages depended on proof that life would probably, not possibly, have been prolonged.
The plaintiff claims an entitlement to be compensated for the loss of an opportunity to elect for treatment of his cancer on the basis of correct diagnosis and appropriate medical advice. Assuming such correct diagnosis, he claims that there was a possibility that his life could have been prolonged to some extent. It is common case that the chances of successful treatment were, at best, problematical. There is no dispute as to the trial judge’s view that medical academic opinion was divided on the benefits of hormone therapy.
The defendants argued that this type of lost opportunity was not valuable in the sense that it should not attract compensation unless it could be proved that the postulated treatment would probably have been successful. Mr Patrick Keane, Senior Counsel for the defendants went so far as to submit that a forty nine percent chance of successful treatment would not confer an entitlement to damages, though a fifty one percent chance would. Asked how this was reconcilable with the universal practice of allowing for percentage risks below fifty of the future development of conditions such as arthritis or epilepsy, he sought to distinguish these examples as being on the debit side only. These were negative possibilities for an injured person, whereas, in the present case, the plaintiff seeks compensation for the loss of a beneficial opportunity.
Before considering the authorities cited by Dr John White, Senior Counsel for the plaintiff, I should say that it seems to me to be contrary to instinct and logic that a plaintiff should not be entitled to be compensated for the fact that, due to the negligent diagnosis of his medical condition, he has been deprived of appropriate medical advice and the consequent opportunity to avail of treatment which might improve his condition. I can identify no contrary principle of law or justice. It is commonplace that allowance is made in awards and in settlements for the risk that an injured plaintiff may in the future develop arthritis in an injured joint. The risk may be high or low – a fifteen percent risk is often mentioned – but damages are paid. I cannot agree that this is any different from what is sought in the present case. It does not matter that the damage suffered by the plaintiff consists of the loss of an opportunity to avail of treatment. It might, with equal logic, be described as an increased risk of shorter life expectancy. It seems to me as illogical to award damages for a probable future injury as if it were a certainty, as to withhold them where the risk is low on the basis that it will not happen at all.
This precise matter was dealt with by this Court in Dunlop v Kenny (Unreported, 29th July 1969). O’Dálaigh C.J. delivered the unanimous judgment. It was held that the jury had been misdirected to the effect that the plaintiff would suffer from epilepsy, when the evidence was that there was “a risk of major epilepsy.” O’Dálaigh C.J. held that the trial judge had overstated the risk. He did not, however, state that there should be no award under this heading. The following passage very clearly indicates the correct approach:
“In cases such as this, where there is an issue of possibility or probability of some disability or illness arising or developing in the future, the damages to be awarded should be commensurate with, and proportionate to, the degree of that possibility or probability as the case may be. If the degree of probability is so high as to satisfy a jury that it remains only barely possible that the condition will not occur, a jury would justified in acting upon the assumption that it will occur, and should measure the damages accordingly. On the other hand, if the probability that no such event will occur is so great that it is only barely possible that it would occur, damages should nevertheless be awarded, but should be proportionate the degree of risk, small though it might be.”
This statement applies, of course, only to the assessment of damages for future uncertain events. In respect of past events, whether related to liability or to the causation of damage or loss, the normal rule of proof on the balance of probability applies. These issues were considered by the House of Lords in Davies v Taylor [1974] A.C. 207. That was a claim for damages under the Fatal Accidents, 1846. The plaintiff brought the claim arising from the death of her husband. At the time or the death, she was estranged from him and he had instructed solicitors to commence proceedings for divorce. In support of her claim for loss of future dependency, she said that reconciliation would have taken place. The House of Lords were unanimously of the view that the trial judge had mistakenly held that no sum was recoverable.
Certain passages from the speeches of the Law Lords provide solid support for the approach I have outlined for this case. Lord Reid spoke at page 213 as follows:
“When the question is whether a certain thing is or is not true- whether a certain event did or did not happen – the court must decide one way or the other. There is no question of chance or probability. Either it did or did not happen. But the standard of civil proof is a balance of probabilities. If the evidence shows a balance in favour of it having happened then it is proved that it did in fact happen.
But here we are not and could not be seeking a decision either that the wife would or that she would not have returned to her husband. You can prove that a past event happened, but you cannot prove that a future event will happen and I do not think that the law is so foolish as to suppose that you can. All that you can do is to evaluate the chance. Sometimes it is virtually 100 per cent ; sometimes virtually nil. But often it is somewhere in between. And if it is somewhere in between I do not see much difference between a probability of 51 per cent and a probability of 49 per cent.
“Injury” in the Fatal Accident Acts does not and could not mean loss of a certainty. It must and can only mean loss of a chance. The chance may be a probability of over 99 per cent but it is still only a chance. So I can see no merit in adopting here the test used for proving whether a fact did or did not happen. There it must be all or nothing.
If the balance of probability were the proper test what is to happen in the two cases which I have supposed of a 60 per cent and a 40 per cent probability? The 40 per cent case will get nothing but what about the 60 per cent case.? Is it to get a full award on the basis that it has been proved that the wife would have returned to her husband? That would be the logical result. I can see no ground at all for saying that the 40 per cent case fails altogether but the 60 per cent case gets 100 per cent. But it would be almost absurd to say that the 40 per cent case gets nothing while the 60 per cent case award is scaled down to that proportion of what the award would have been if the spouses had been living together. That would be applying two different rules to the two cases. So I reject the balance of probability test in this case.”
Lord Simon at page 220 of Glaisdale spoke to similar effect:
“…But this is one of those cases where a balance of probabilities is not the correct test. If the appellant showed any substantial (i.e. not merely fanciful) possibility of a resumption of cohabitation she was entitled to compensation for being deprived of that possibility. The damages would, of course, be scaled down from those payable to a dependant spouse of a stable union, according as the possibility became progressively more remote. But she would still e entitled to some down to the point where the possibility was so fanciful and remote as to be de minimis.”
The assessment of future losses is, on occasion, a matter of mathematical calculation. In certain cases, the courts are accustomed to resorting to the evidence of actuaries, who are expert in calculating the present capitalised value of a combination of future events of greater or lesser likelihood. They can build in allowance for the occurrence of a variety of possibilities including likely age of death or retirement. Nobody suggests that their calculations must be posited on the probable as distinct from the possible happening of each event. Their reports would be deeply flawed if they were.
In my view, the plaintiff should receive an award for the loss of the opportunity to be advised correctly and treated accordingly. Taking this element together with the element of aggravation of damage by the judgment of McCracken J, I believe the sum of €100,000 represents to correct level of the award. I would, therefore, dismiss the appeal and allow the cross appeal substituting the sum of €100, 000 for the sum of €45,000 awarded in the High Court, that increased sum to include both compensation for the loss of life expectancy and the aggravation of damage dealt with in the judgment of McCracken J.
McCracken J.
In this judgment I propose to deal only with the question of whether the Plaintiff is entitled to aggravated damages by reason of the behaviour of the Defendants in the preparation and presentation of their case.
In Conway v. Irish National Teachers Organisation [1991] 2 IR 305 the circumstances in which aggravated or exemplary damages could be awarded was considered by this Court. In the present case the Plaintiff does not claim exemplary damages such as were ultimately awarded in that case, but does claim aggravated damages. At page 317 Finlay CJ dealt with several types of damages which could be awarded and said:-
“2. Aggravated damages, being compensatory damages increased by reason of:-
(a) The manner in which the wrong was committed, involving such elements as oppressiveness, arrogance or outrage, or
(b) the conduct of the wrongdoer after the commission of the wrong, such as a refusal to apologise or to ameliorate the harm done or the making of threats to repeat the wrong, or
(c) conduct of the wrongdoer and/or his representatives in the defence of the claim of the wronged plaintiff, up to and including the trial of the action.
Such a list of the circumstances which may aggravate compensatory damages until they can properly be classified as aggravated damages is not intended to be in anyway finite or complete. Furthermore, the circumstances which may properly form an aggravating feature in the measurement of compensatory damages must, in many instances, be in part a recognition of the added hurt or insult to a plaintiff who is being wronged, and in part also a recognition of the cavalier or outrageous conduct of the defendant.”
In the present case, the Plaintiff relies on the last of these factors as entitling him to aggravated damages. In Swaime v. Commissioners of Public Works [2003] 1 IR 521, where the question of aggravated damages was considered in the light of a claim for negligence against the defendants in exposing the plaintiff to the risk of contracting mesothelioma, Keane CJ said at page 525, after referring to the Conway case:-
“Although the then Chief Justice in the passage which I have quoted emphasises that the list of the circumstances in which aggravated damages may be awarded is not intended to be exhaustive, those circumstances which he has identified do not typically arise in cases of negligence and, if they do, are not a ground for increasing the amount of compensatory damages.”
He then went on to comment that in a claim for negligence one would not expect the circumstances giving rise to aggravated damages to arise because:-
“Most parties leave the subsequent conduct of the action entirely to their solicitors or their insurers.”
However, after referring to the English decision of Appleton v. Garrett [1966] PIQR 1 and the Supreme Court decision in Cooper v. O’Connell (unreported 5th June 1997) the Chief Justice continued at page 528:-
“Those authorities were not cited in the present case either and, in those circumstances, it would not be appropriate for the court, in my view, to hold that there are no circumstances in which actions for negligence or nuisance, aggravated damages may be awarded. That question can be left for a case in which it is fully argued. In the present case, however, I am satisfied that, while the defendants were unquestionably guilty of what the trial Judge described as ‘the grossest negligence’, that factor, of itself, is not sufficient to entitle the plaintiff to aggravated damages in the absence of circumstances such as those referred to in the judgment of Finlay CJ in Conway v. Irish National Teachers Organisation [1991] 2 IR 305, or factors of a similar nature.”
It should be said that the authorities referred to by Keane CJ in that passage were not cited in this case either, and the applicability of aggravated damages to actions in negligence was not argued at any length in this Court. However, it must be emphasised that the claim for aggravated damages in the present case is not based in any way on the degree of negligence of the Defendants, but rather on their behaviour subsequent to the negligent acts.
The basis for the aggravated damages in the present case lies in the clinical notes of the first named Defendant in relation to the consultation with the Plaintiff on 12th July 2001. The relevant entry, dated 12/7/01, reads:-
“ROC at OPD today
for see DECO1
PSA 6/52”
It is quite clear from looking at the notes that they purport to be a contemporaneous account of what occurred on the various dates set out in those notes. The Plaintiff gave evidence that the first line was his shorthand for “removal of catheter at outpatients department today”, that the word “For” was his abbreviation for what he planned to do and that he was to see the Plaintiff in December 2001. In the course of his evidence he conceded that the words “PSA 6/52”, which was intended to convey that the Plaintiff was to have a PSA test in six weeks, was an addition which he made to the notes at a later date, namely in December 2002 when he received a letter from the Plaintiff’s solicitor threatening an action against him.
The Plaintiff’s advisors clearly had doubts as to the authenticity of these clinical records, and had refused to admit them in evidence unproved, although the Plaintiff did admit the hospital records without formal proof. The matter finally came to light on the sixth day of the hearing, during the evidence in chief of the first Defendant. He referred to his clinical notes in relation to a totally different matter and the learned trial Judge, who appears to have assumed that the clinical notes had been admitted, asked to see them. Counsel for the Plaintiff said the notes had not been admitted in evidence and called for the originals to be produced. This was done, and at that stage the first Defendant disclosed that “PSA 6/52” was an addition which I made to the notes at a later date”. He explained this by saying that in December 2002, when he received a letter from the Plaintiff’s solicitor threatening an action against him, he reviewed his notes and he also reviewed his correspondence with the Plaintiff’s general practitioner. In the course of this correspondence in July 2001 he had told the general practitioner that he was going to arrange to have a PSA repeated in about six weeks time. He said that a letter to a general practitioner would normally be a more complete record, and he assumed that he had omitted this from his clinical notes. It should be noted that he did not say in his evidence in chief that he recollected having told the Plaintiff to have an additional test done in six weeks time.
Under cross-examination the first Defendant conceded that:-
“I do not say with certainty that I did that or that I gave that instruction to Mr Philp. I cannot remember the consultation. So if I understand your question to be asking me am I sure that I gave that direction to Mr Philp, can I say I asked him to have it done, the answer is no, I cannot say that.”
Subsequently in the course of cross-examination Counsel for the Plaintiff sought to ask him when was the first time that he had disclosed to anyone that he had altered the document. Through his Counsel, the first Defendant claimed privilege on the basis that he was being asked to disclose a communication between a client and his lawyer, and this objection was upheld. However, in cross-examination he did say that he had realised “recently” that there was a possibility that he did not advise the Plaintiff to have a test done as recorded in the notes and added:-
“And I then took the step of contacting my legal team and informing them of the situation in relation to the note.”
Subsequently he said that the decision to disclose the fact that the document had been altered was made approximately one week before the hearing and later said:-
“I at all times up to recently, by which I mean, you know, approximately, two weeks ago, was of the mind that I had asked for this PSA test to be done.”
He repeated on several other occasions in the course of the cross-examination that, before the action had commenced, he contacted his legal team and discussed the matter with them and sought advice.
The learned trial Judge, having heard all the evidence, stated at page 26 of his judgment:-
“Given Mr Ryan’s evidence in Court that he has no recollection of the consultation of the 12th July 2001, I cannot however accept his evidence that he was completely sure that, in altering that record, he was only completing the record so that it reflected the true situation. I believe on the balance of probabilities that on receipt of the solicitor’s letter in December 2002 he looked at the clinical notes and in some sense of panic which must have impaired his judgment as to how to react or act, he inserted a note which he felt would assist him in his defence of what was obviously going to be a claim against him.”
This is an extremely serious finding against the first Defendant. It is a finding that the first Defendant deliberately and knowingly altered a document which he must have known would be used in court proceedings with the intention of, as the learned trial Judge said, assisting his case, which in fact means with the intention of deceiving the court, and of attempting to deprive the Plaintiff of damages to which he has subsequently been found to be lawfully entitled.
That matter is of itself extremely disturbing, because obviously the first Defendant had instructed his legal advisors that he had requested the Plaintiff to have a further PSA test in six weeks time. His legal advisors, quite properly at the time, in effect represented to the Plaintiff and his advisors that this was a fact which would be proved by the first Defendant. I will come to these matters later in the judgment.
In addition to misleading his legal advisors, the Plaintiff also sought to, and succeeded in, misleading his own expert witness. He prepared a case summary submitted to Mr Michael Murphy, a consultant urologist who gave evidence on his behalf, which was headed “Case Summary”. In the course of that case summary he made the following statements:-
“I asked him to have a serum PSA measurement carried out after six weeks in the Middle East and to contact me with the result.”
and
“Given that I felt that prostate cancer was only a remote possibility, would see it as good medical practice to try and avoid what appeared to be unnecessary worry and anxiety for a patient over a period of six weeks while his next investigative assessment (i.e. repeat serum PSA) was awaited. Had the follow-up PSA test been carried out as instructed and in the event that the follow-up PSA test was not showing signs of decreasing and indeed were it noted to be increasing, I would have expressed appropriate concern …..”
and
“What transpired was that Mr Philp did not contact me with a PSA result as requested.”
In my view this was a clear attempt to mislead a witness, who the first Defendant knew was going to give evidence as an expert, and therefore would be regarded by the Court in that light. Through misleading Mr Murphy, the first Defendant was again attempting to mislead the Court. Fortunately, the alteration was discovered before Mr Murphy gave his evidence, and was indeed roundly condemned by him.
The allegation that the Plaintiff had been asked to have a further test done in six weeks time was not just contained in the clinical notes and the report to Mr Murphy. It was also made in a number of ways to the Plaintiff’s legal advisors, albeit, as I have said, at a time when no doubt it was believed to be true by the Defendants’ legal advisors. On 1st July 2003 the Plaintiff was served with a notice to admit facts, and was asked to admit that he had been told by the first named Defendant to arrange to have a test carried out six weeks later. On 7th July 2003 interrogatories were administered to the Plaintiff requiring the Plaintiff to admit on oath that the first named Defendant told him on 12th July 2001 to arrange to have a PSA test carried out six weeks later and that it was important to have the test carried out. On 22nd May 2003 the first named Defendant swore an affidavit of discovery which disclosed his clinical notes, and when production of these were sought, it was the altered notes that were produced. In fact, despite its date, that affidavit of discovery was not furnished to the Plaintiff until the 24th June 2003. On 1st July 2003 the Plaintiff’s solicitors were asked admit the medical records held by the Defendants without formal proof. On 19th July 2003 the Defendants’ solicitors replied to a notice for particulars stating that “on the 12th July 2001 Dr Ryan instructed the plaintiff to have a serum PSA measurement carried out after six weeks in the Middle East and to contact him with the result”.
There is no doubt that faced with these documents, the defence against the Plaintiff’s case must have appeared to the Plaintiff’s advisors as being much stronger than it really was. The main plank of the Plaintiff’s case was that he was not told for some eight months after he became ill in July 2001 that he was suffering from prostate cancer. If in fact he himself had failed to comply with the first Defendant’s request to have a test carried out in six weeks time, then of course much if not all of the blame for the delay would have been attributable to the Plaintiff himself. He might well have been discouraged from proceeding with the action or have settled it at well below its value because of the apparent risk. Furthermore, had the alteration in the document not come to light somewhat fortuitously through the intervention of the learned trial Judge, the Defendants’ expert, Mr Murphy, would have given evidence on the basis that the alleged instruction had been given to the Plaintiff, and the first Defendant himself would not have been subjected to strenuous cross-examination in relation to this instruction. It is quite possible that the learned trial Judge in those circumstances would have found against the Plaintiff.
The truly appalling feature in this case is that it appears that the Defendants’ advisors were told of the alteration by the first Defendant between one and two weeks before the commencement of the action. I find it almost incomprehensible that in those circumstances they did not inform the Plaintiff’s solicitors of the true facts. While a great deal of blame attaches to the first Defendant for having altered the document in the first place, he did at least disclose the facts to his own legal advisors, and in my view at least equal if not greater blame must be attributable to them. It is instructive that they did not seek to use the clinical notes in cross-examination of the Plaintiff or his advisors, although they did suggest in such cross-examination that he had been instructed to have a further test taken in six weeks time. They did not seek to have their own client prove the notes until they were called for by the learned trial Judge, although they knew they were being put on proof of the notes. There must be at least a suspicion that there was a deliberate attempt to keep the true facts from the Court notwithstanding that the altered document had been furnished to the Plaintiff’s solicitors as being genuine, and that the facts stated in the alteration had formed part of the instructions to Mr Murphy.
In reviewing the law at the beginning of this judgment I pointed out that some doubt had been expressed as to whether aggravated damages should be awarded in negligence claims. I have no doubt that this is a classic example of a case where such damages can and should be awarded. The Plaintiff has not given evidence of the effect of the misinformation which he received had on him. This is not something which the Defendants can complain about, because his failure to discover the true facts before he had closed his case was due entirely to what I can only describe as the misconduct of the Defendants’ advisors in not disclosing the alteration.
In the absence of direct evidence, in those circumstances in my view the Court is perfectly entitled to infer the probable effect that this false information had on the Plaintiff. It must be remembered that he is a man who had for the last two years known that he was suffering from prostate cancer and does not have long to live. He has undertaken proceedings based on the worry, anxiety and loss of opportunity which arose due to the negligence of the Defendants. One can only imagine the additional stress and anxiety which he must have suffered in the belief that there was, at least in documents shown to him, a strong defence to his action. The loss for which he has already been compensated due to the negligence of the Defendants has in my view been greatly increased due to the grossly improper behaviour of both the first Defendant and his legal advisors. This is clearly as case where already existing damages have been aggravated by such behaviour and I would award him a sum of €50,000.00 in addition to the compensatory damages awarded in relation to his basic claim, as set out in the judgment of Fennelly J, with which judgment I am in full agreement.
Walsh v Jones Lang Lasalle Ltd
[2017] IESC 38
This evidence, while useful background, does not resolve the issue in this case. That ultimately turns on an analysis of the applicable law, the test to be applied, and a consideration of the terms of the disclaimer in the light of the applicable law. Relying in part on the then relatively recent decision of the Supreme Court in Wildgust & anor v. Bank of Ireland & anor [2006] 1 IR 570, the High Court concluded that the defendant was liable and that the disclaimer did not operate to protect the defendant. The reasoning of the learned trial judge is contained in a number of passages commencing at the following paragraph where he addressed the question as follows:
“It seems to me that the question for determination in relation to the ‘waiver’ is, whether its presence within the brochure and its precise terms, are together sufficient to exclude the defendant from liability to the plaintiff in respect of negligence by the defendant in the incorrect measurement of the floor area of the property and negligent misstatement on the part of the defendant in publishing the incorrect measurements of the floor area. On the evidence I do not believe that they are sufficient.”
16 The trial judge elaborated on this and concluded:
` “If the defendant wished to reserve to itself the right (a) to publish within its sales brochure, precise measurements which were in fact grossly inaccurate and (b) to relieve itself of liability to the category of persons to whom the brochure and its contents were directed, then there was an obligation upon the defendant to draw to the attention of the plaintiff and other prospective purchasers the fact that the seemingly precise measurements published were likely to be wholly unreliable and should not be relied upon in any circumstances.
By including within its brochure an enigmatic sentence in small print claiming to have taken particular care in the preparation of all of the particulars within the brochure but advising prospective purchasers to ‘satisfy themselves as to the correctness of the information given’ the defendant failed to discharge that obligation.
On the evidence of the practice adopted by buyers and sellers of commercial property in Dublin at the relevant time the defendant’s ‘disclaimer’ was a quite inadequate means of notifying prospective purchasers that the seemingly precise measurements of the floor areas so prominently published within the sales brochure were wholly unreliable.
It follows that the ‘waiver’ published at the bottom of the front page of the defendant’s brochure was not effective to relieve the defendant of liability in respect of negligence and negligent misstatement of the type contended for on behalf of the plaintiff.” (emphasis added)
17 I appreciate that the way in which the case was approached in the High Court meant that this judgment was not likely to make precise distinctions of law, or to provide elaborate reasons for its conclusion. I think it is fair to summarise the decision in the following way. It appears that the Court concluded, in effect, that there was sufficient proximity between the parties to give rise to a duty of care (and perhaps that it was not necessary to distinguish between negligent acts and negligent statements) and that the disclaimer was not effective to relieve the defendant of liability for negligence in making such a statement.
18 There is an undeniable attraction in taking the approach of treating this case as an individual instance having no broader implications for the law and capable of being decided on its own facts by reference to the well known principles of Hay v. O’Grady [1992] I.R. 210 which sets out the limitations of appellate review. This is indeed the way in which many negligence actions are resolved. Although the vast majority of civil claims depend at bottom upon the law of negligence, almost all of them are resolved without any dispute about, or even reference to, legal principles. Such cases are resolved almost by rules of thumb that mean that most cases are decided on the issue of whether some element which can be described as negligence has been proven in fact. This is not to say that the resolution of such cases is not of considerable importance for the individuals involved and does not require considerable skill; merely that detailed analysis of law is rare. Once some carelessness can be shown, it is assumed that the plaintiff should succeed. There is, indeed, a lot to be said for the pragmatic approach. The settlement of difficult cases may be a form of soft law, but it can be a useful way to achieve some broad justice. Here, indeed, there was much to be said for not having pressed these matters to a determination. On the plaintiff’s side, by the time the case came on, it was certainly artificial to speak of the plaintiff having suffered any losses from an investment that was extremely successful. On the defendant’s side, whatever the legal effect of the waiver, attention would be directed to an error which must surely have been embarrassing for a firm conscious of its reputation for expertise. Many mathematical and measurement errors can indeed be made even though time and care is taken. But once an error is identified, it is hard to dispute that if more care had been taken, it would not have been made.
19 However, this case proceeded to hearing and was determined in favour of the plaintiff. Again, if it were permissible to take a broad brush approach to this case, then the result is certainly not one which is demonstrably unfair. Jones Lang Lasalle did not deny that it was careless in providing inaccurate measurements, something which was well within its expertise. Furthermore, the waiver upon which it now relies stated that “every care” had been taken. Again, therefore, if it were permissible to approach this case as simply one more instance of the “wilderness of single instances” of the law of negligence and raising no broader issue, it would not call for much judicial attention. However, this appeal, whether viewed narrowly or broadly, raises important issues of law which this Court cannot, at least in my view, and should not properly avoid.
20 It is necessary to place this claim in a wider context. Insomuch as it is contended that that there was sufficient proximity, indeed neighbourhood between the parties here, sufficient to justify the imposition of a duty of care on Jones Lang Lasalle in respect of the plaintiff, such proximity, is created by a transaction in this case, the purchase of land which is itself regulated by contract in terms familiar to lawyers, and to members of the public, particularly those who engage in property investment. The plaintiff here entered into a contract to buy the property from the vendor. Jones Lang Lasalle acted as agents for the vendor in marketing the property. The relationship between the vendor and Jones Lang Lasalle was itself, essentially, contractual. Neither of these two contracts were discussed in evidence or in the judgment of the High Court, but they create two sides of a triangular relationship which the plaintiff contends justifies the imposition of a duty of care on Jones Lang Lasalle towards the plaintiff. The absence of any contractual claim against the vendor either for rescission for misrepresentation (admittedly an unlikely and undesirable remedy from the plaintiff’s point of view given the intervening movement of the market) or, more realistically, a claim for damages for breach of warranty suggests that here, the statement or misstatement by Jones Lang Lasalle in relation to the area of the premises did not have contractual significance at least as between the purchaser and the vendor. It does not appear that the area of the premises was a term of the contract between the vendor and purchaser. An important starting point, therefore, is that the misstatement as to the size of the premises does not appear to have had legal consequences as and between the primary parties to the sale, and therefore, and in consequence, between Jones Lang Lasalle and its client who was, after all, paying for Jones Lang Lasalle’s services. It is against this background that the claim that the vendor’s agents owed to the purchaser a duty of care must be approached. This reinforces, in my view, the importance of recalling that the starting point of the analysis in Hedley Byrne v. Heller [1964] AC 465 was that normally a party does not owe a duty in tort to another in respect of statements made by them. This is an important distinction. In the area of actions it can be said the starting point is normally “duty of care unless”, whereas for statements it is a case of “duty of care only if”.
The Broad or Narrow Approach to Liability
21 The narrow version of the plaintiff’s claim depends solely on the interpretation of the waiver for the purposes of the traditional law of negligent misstatement. The question here is whether the relationship between the parties is sufficient to create a duty of care and a disclaimer can be an important piece of evidence in that regard. The plaintiff’s case, on this narrow version, is simply that the terms of the waiver here are not sufficient to mean that a duty of care did not arise. A broader version of the claim, which appears to be discernible at points in the judgment of the High Court and in the submissions made to this Court, would, however, involve a significant development of the law, and a blurring of the distinction between negligent misstatement and the law of negligent acts, if not its removal. In the context of this case, these two approaches have significant differences for the analysis of the waiver clause. On the traditional principles of negligent misstatement, a waiver is relevant when considering whether a duty of care arose at all. A waiver is interpreted fairly broadly in considering whether the defendant can be said to have assumed, as between itself and a plaintiff, the risk of error. However, if the case is approached on the basis that there was an existing duty of care by reason of the proximity of the parties, then the waiver becomes a clause excluding or limiting liability to which courts have traditionally applied a very strict analysis. It is clear, therefore, that the manner in which the case is approached may have significant, indeed decisive, impact on the outcome.
The decision in Hedley Byrne v. Heller
22 The landmark decision in Hedley Byrne v. Heller [1964] AC 465 established the principle that the author of a statement could, in certain circumstances, be liable for financial loss caused by it to a person relying on it. This principle was almost immediately adopted in Ireland in Securities Trust Ltd. v. Hugh Moore & Alexander Ltd. [1964] I.R. 417, and Bank of Ireland v. Smith & Ors. [1966] I.R. 646 and since then it has been accepted that the development of Irish law flows from the analysis originally made in that case. Hedley Byrne contained an important statement that, in principle, liability in negligence could extend beyond negligent acts causing physical damage and consequential loss covered by the principle in Donoghue v. Stevenson [1932] AC 562. The House of Lords made it clear, however, that different principles applied in the case of damages claimed as a result of statements made rather than acts done or omitted to be done. Importantly, the House of Lords also held (indeed it was the ratio decidendi of that case) that any duty of care for negligent misstatement could be negatived by an appropriate disclaimer. For these reasons, Hedley Byrne is particularly relevant to this case.
23 In that well known case, advertising agents who were contemplating acting on behalf of a company and placing advanced advertisements for which the agents would be personally liable sought information as to the prospective clients’ financial stability. They requested their bank to make inquiries from Heller & Partner who were bankers to the client company. Heller replied “in confidence and without responsibility on our part” that the company was believed to be “respectably constituted and considered good for its normal business engagements”. It was also stated that the bank believed “that the company would not undertake any commitments they were unable to fulfil”. This information was passed on to the plaintiff advertising agents by letter stating that it was “for your private use and without responsibility on the part of [the plaintiff’s bankers]”. Some months later, the request was repeated. On that occasion, Heller & Partner sent a letter to the plaintiffs bankers headed “CONFIDENTIAL For your private use and without responsibility on the part of this bank or its officials” the advice given was that the company in question was “a respectably constituted company, considered good for its ordinary business engagements. Your figures are larger than we are accustomed to see”.
24 As is well known, the House of Lords decided that in principle, statements such as this could give rise to a liability, but that in that case, any such duty of care was negatived by the terms of the disclaimer. It is worth, however, considering in rather greater detail the terms of the speeches delivered and, in particular, those of Lords Reid, Devlin and Pearce.
25 At pp. 482-484, Lord Reid stated:
“The appellants’ first argument was based on Donoghue v. Stevenson. That is a very important decision, but I do not think that it has any direct bearing on this case. That decision may encourage us to develop existing lines of authority, but it cannot entitle us to disregard them. Apart altogether from authority, I would think that the law must treat negligent words differently from negligent acts. The law ought so far as possible to reflect the standards of the reasonable man, and that is what Donoghue v. Stevenson sets out to do. The most obvious difference between negligent words and negligent acts is this. Quite careful people often express definite opinions on social or informal occasions even when they see that others are likely to be influenced by them; and they often do that without taking that care which they would take if asked for their opinion professionally or in a business connection. The appellant agrees that there can be no duty of care on such occasions, and we were referred to American and South African authorities where that is recognised, although their law appears to have gone much further than ours has yet done. But it is at least unusual casually to put into circulation negligently made articles which are dangerous. A man might give a friend a negligently-prepared bottle of homemade wine and his friend’s guests might drink it with dire results. But it is by no means clear that those guests would have no action against the negligent manufacturer.
Another obvious difference is that a negligently made article will only cause one accident, and so it is not very difficult to find the necessary degree of proximity or neighbourhood between the negligent manufacturer and the person injured. But words can be broadcast with or without the consent or the foresight of the speaker or writer. It would be one thing to say that the speaker owes a duty to a limited class, but it would be going very far to say that he owes a duty to every ultimate ‘consumer’ who acts on those words to his detriment. It would be no use to say that a speaker or writer owes a duty but can disclaim responsibility if he wants to. He, like the manufacturer, could make it part of a contract that he is not to be liable for his negligence: but that contract would not protect him in a question with a third party, at least if the third party was unaware of it.
So it seems to me that there is good sense behind our present law that in general an innocent but negligent misrepresentation gives no cause of action. There must be something more than the mere misstatement. I therefore turn to the authorities to see what more is required. The most natural requirement would be that expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility, and that appears to me not to conflict with any authority which is binding on this House. Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty. The refusal of English law to recognise any jus quaesitum tertii causes some difficulties, but they are not relevant, here. Then there are cases where a person does not merely make a statement but performs a gratuitous service. I do not intend to examine the cases about that, but at least they show that in some cases that person owes a duty of care apart from any contract, and to that extent they pave the way to holding that there can be a duty of care in making a statement of fact or opinion which is independent of contract.” (Emphasis added)
26 I have set out this passage at length because it makes it clear at the very outset that a clear distinction is being made between liability for negligent acts and misstatements. Lord Reid’s reference to contract and those cases where English law refused to recognise rights of a third party to sue on contracts is also instructive since it sets up an important point of comparison by reference to which any claim of the duty of care must be analysed. Again, the emphasis on the undertaking of responsibility for a statement is important. This leads to the portion of the speech containing the decision in principle at p. 486:
“A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.”
27 This analysis led to the important conclusion that the decision of the Court of Appeal in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164 was wrongly decided, and that the dissent of Denning L.J. was correct. That case was one where accountants to a company had been asked to complete the preparation of accounts in order that they be shown to a prospective purchaser. The accountants went further and showed the accounts to the purchaser themselves, discussed them with him, and allowed him to take a copy. In those circumstances, Lord Reid considered, a duty of care arose. Again, this is perhaps an important illustration of circumstances in which liability can arise: the defendant accountants have done more than issue general accounts which might be considered by the world at large; they had engaged in a personal interaction with the plaintiff as to the terms of the accounts and did so in the specific context of the likely purchase by the plaintiff of the company.
28 However, having held that a duty of care in respect of statements made could arise in principle, Lord Reid considered that no such duty arose in the particular case because of the terms of the disclaimer. In so doing, he made an important distinction between disclaimers in such circumstances, and an exemption clause purporting to excuse a party from a liability which he or she had undertaken under contract, or which already exists in tort (at p. 492):
“The appellants founded on a number of cases in contract where very clear words were required to exclude the duty of care which would otherwise have flowed from the contract. To that argument there are, I think, two answers. In the case of a contract it is necessary to exclude liability for negligence, but in this case the question is whether an undertaking to assume a duty to take care can be inferred: and that is a very different matter. And, secondly, even in cases of contract general words may be sufficient if there was no other kind of liability to be excluded except liability for negligence: the general rule is that a party is not exempted from liability for negligence ‘unless adequate words are used’ per Scrutton L.J. in Rutter v. Palmer. It being admitted that there was here a duty to give an honest reply, I do not see what further liability there could be to exclude except liability for negligence: there being no contract there was no question of warranty.
I am therefore of opinion that it is clear that the respondents never undertook any duty to exercise care in giving their replies. The appellants cannot succeed unless there was such a duty and therefore in my judgment this appeal must be dismissed.”
29 The speech of Lord Devlin was broadly to the same effect. At pp. 524-525, he observed:
“Now, it is not, in my opinion, a sensible application of what Lord Atkin was saying for a judge to be invited on the facts of any particular case to say whether or not there was “proximity” between the plaintiff and the defendant. That would be a misuse of a general conception and it is not the way in which English law develops. What Lord Atkin did was to use his general conception to open up a category of cases giving rise to a special duty…
The real value of Donoghue v. Stevenson to the argument in this case is that it shows how the law can be developed to solve particular problems. Is the relationship between the parties in this case such that it can be brought within a category giving rise to a special duty?”
30 At pp. 528-529 of the report, Lord Devlin made the important point that the absence of a contract was not dispositive since there may be circumstances where a person or business gets indirect benefit from the provision of information outside of a contractual relationship, and it was therefore entirely reasonable to find that the duty of care arose:
“I think, therefore, that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v. Lord Ashburton are ‘equivalent to contract,’ that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract. Where there is an express undertaking, an express warranty as distinct from mere representation, there can be little difficulty. The difficulty arises in discerning those cases in which the undertaking is to be implied. In this respect the absence of consideration is not irrelevant. Payment for information or advice is very good evidence that it is being relied upon and that the informer or adviser knows that it is. Where there is no consideration, it will be necessary to exercise greater care in distinguishing between social and professional relationships and between those which are of a contractual character and those which are not. It may often be material to consider whether the adviser is acting purely out of good nature or whether he is getting his reward in some indirect form. The service that a bank performs in giving a reference is not done simply out of a desire to assist commerce. It would discourage the customers of the bank if their deals fell through because the bank had refused to testify to their credit when it was good.”
31 While acknowledging that the categories could be expanded, Lord Devlin approached the case on the basis that “wherever there is a relationship equivalent to contract, there is a duty of care”. As he said at page 532:
“The question is whether the appellants can set up a claim equivalent to contract and rely on an implied undertaking to accept responsibility.”
However, on the facts of the present case, he held that there was no assumption of responsibility and therefore no duty of care. At page 533, he said:
“I agree entirely with the reasoning and conclusion on this point of my noble and learned friend, Lord Reid. A man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not. The problem of reconciling words of exemption with the existence of a duty arises only when a party is claiming exemption from a responsibility which he has already undertaken or which he is contracting to undertake.”
32 Lord Pearce also addressed the argument that the disclaimer in that case was not sufficiently precise to exclude liability for negligence. At page 540, he said:
“Nothing, however, except negligence could, in the facts of this case, create a liability (apart from fraud, to which they cannot have been intended to refer and against which the words would be no protection, since they would be part of the fraud). I do not, therefore, accept that even if the parties were already in contractual or other special relationship the words would give no immunity to a negligent answer. But in any event they clearly prevent a special relationship from arising. They are part of the material from which one deduces whether a duty of care and a liability for negligence was assumed. If both parties say expressly (in a case where neither is deliberately taking advantage of the other) that there shall be no liability, I do not find it possible to say that a liability was assumed.”
33 The decision in Hedley Byrne v. Heller was accepted as representing Irish law in the case of Securities Trust Ltd v. Hugh Moore & Alexander Ltd. [1964] I.R. 417. In Bank of Ireland v. Smith & Ors [1966] I.R. 646, an advertisement of land for sale in court in a mortgage suit stated, erroneously, that a portion of the land was sown with barley and undersown with permanent pasture. The statement was made by auctioneers who were agents for the vendors. Kenny J. held that it would be against conscience that the vendor in a court sale should not be bound by a representation made by the agent in connection to the sale. Accordingly, the purchaser was entitled to cover damages for breach of warranty from the vendor. However, Kenny J. rejected the further claim that the auctioneers were liable in tort for negligent misstatement, and at page 659, he said:
“It was said that an auctioneer acting for a vendor should anticipate that any statements made by him about the property will be relied on by the purchaser and that he, therefore, owes a duty of care to the purchaser and is liable in damages to him if the statement was incorrect and was made carelessly. In my opinion the decision in Hedley Byrne & Co. v. Heller does not give any support to this startling proposition. It decides that if a person seeks information from another in circumstances in which a reasonable man would know that his judgment is being relied on, the person giving the information must use reasonable care to ensure that his answer is correct, and if he does not do so he is liable in damages: but the relationship between the person seeking the information and the person giving it, if not fiduciary or arising out of a contract for consideration, must be, to use the words of Lord Devlin, ‘equivalent to contract before any liability can arise’.”
From these extracts, it is clear that, at least at the outset, the approach to any disclaimer in negligent misstatement was to view it as a piece of evidence relevant to the question of whether a relationship existed sufficient to give rise to a duty of care, and that was not appropriate to approach a disclaimer with the strictness that the courts analyse exemption clauses seeking to exclude liability which already exists.
34 The law has developed in the intervening period and there are some instructive examples of purchasers succeeding in claims against estate agents acting ostensibly on behalf of vendors. In McAnarney v. Hanrahan [1993] 3 I.R. 492, Costello J. upheld a plaintiff’s claim against an auctioneer in respect of statements made in the course of a sale. In that case, the defendant had considerable interaction with the plaintiff, and misrepresented to them that the premises had been withdrawn at auction at a price, and furthermore that the owners of the freehold had indicated a willingness to sell it for approximately £3,000. On those representations, the plaintiff agreed to pay £55,000 for the leasehold interest although they had previously intended to pay no more than £45,000. The purchase proved disastrous for the plaintiff, who sued in respect of the misrepresentation. Costello J. held that the dealings between the parties were such that a special relationship had arisen between them, imposing on the defendant auctioneer a duty of care in giving the information. This is an example of a situation in which an auctioneer or estate agent can owe a duty of care to a person other than his or her client. Here, however, liability arose because of quite extensive dealings with the plaintiff in circumstances where, to borrow the analysis of Lord Devlin, while the plaintiff was not formally a client of the agent/auctioneer, they had a relationship which was of indirect benefit to the estate agent/auctioneer. Accordingly, the plaintiff was entitled to recover, but only the difference between the price paid and the true value of the land. Similarly, in McCullough v. Gunne, (Unreported, High Court, Carroll J., 17th January 1997), the High Court held that where plaintiffs who had never dealt in property before went to a defendant auctioneer/estate agent and “asked him to keep them straight”, the auctioneer owed a duty of care to them as well as to the owners of the premises for whom he was acting, when the plaintiffs bought it. In neither of these cases was a disclaimer relied upon, and the dealings between the parties extended far beyond the provision of standard particulars of sale. Both of these cases are consistent, therefore, in that while a duty of care did not arise generally from the fact that an auctioneer may have been acting on behalf of a vendor, the particular dealing between the parties gave rise to a special relationship on the facts of the individual case. Doran v. Delaney [1998] 2 I.R. 61 is a variation on this theme. In that case, vendor’s solicitors were, unusually, held to owe a duty of care to a purchaser in circumstances where, as provided in the headnote to the judgment, they passed on information to them “while having reason to believe that it was not wholly truthful”.
McCullagh v. Lane Fox and Partners Ltd.
35 Perhaps the case which is closest to the facts of the present matter is an English case referred to in passing in Doran v. Delaney [1998] 2 I.R. 61. In McCullagh v. Lane Fox and Partners Ltd. [1996] PNLR 205, a firm of estate agents had prepared particulars of a substantial private residence in London adjoining the Thames. The house was described as being set on 0.92 acres. In fact, the gardens only measured 0.48 of an acre. The plaintiff bought the property but later sued the agents for negligent misrepresentation. The particulars contained what, in the words of the headnote to the reported judgment, were described as “typical estate agents disclaimers”. It is right to acknowledge that these were more extensive than the disclaimer in the present case. Thus, the disclaimer was set out in five paragraphs:
“1. These particulars do not constitute, nor constitute any part of, an offer or contract.
2. All statements contained in these particulars as to this property are made without responsibility on the part of Lane Fox or the vendors or lessors.
3. None of the statements contained in these particulars as to this property are to be relied on as statements of representations of fact.
4. Any intending purchasers must satisfy themselves by inspection or otherwise as to the correctness of each of the statements contained in these particulars.
5. The vendors do not make or give and neither Lane Fox nor any person in their employment has any authority to make or give any representation or warranty whatever in relation to this property.”
36 The High Court of England and Wales found that the defendant was liable, applying the principle in Donoghue v. Stevenson and holding that the exemption clause was not sufficiently precise to exclude liability in this case. The defendant was a reputable firm of competent surveyors who could be expected to measure the site correctly; the purpose of the provision of the information was to encourage offers by potential purchasers; it was obvious to the defendant that the plaintiff would rely on the information and it was reasonable to do so. There was nothing, in the circumstances, making it unjust to impose liability on the defendant. However, the Court also held that since the true value of the premises was the price paid by the plaintiff, the plaintiff had suffered no loss.
37 The Court of Appeal of England and Wales overturned both conclusions. For present purposes, it is particularly significant that the Court of Appeal held that the disclaimer prevented any assumption of responsibility, and therefore duty of care, from arising. Having quoted Hedley Byrne v. Heller [1964] AC 465, Hobhouse L.J., continued at pages 222-223:
“Thus the relevance of the disclaimer is to negative one of the essential elements for the existence of the duty of care. It negatives the assumption of responsibility for the statement. It implicitly tells the recipient of the representation that if he chooses to rely upon it he must realise that the maker is not accepting responsibility for the accuracy of the representation. The disclaimer is part of the factual situation which the court has to take into account in deciding whether or not the defendant owed a duty of care to the plaintiff. Put another way, the question is whether the plaintiff was entitled to treat the representation as one for which the defendant was accepting responsibility. This is primarily a factual question.”
Subject to the qualification that once the facts are found, the question of whether, on those facts, a duty of care arises becomes an issue of law, I would agree with this analysis. It is an orthodox application of the decision in Hedley Byrne v. Heller.
38 It is of some interest that the Court of Appeal, however, upheld that part of the decision of the High Court (approved of in Doran v. Delaney) which held that, in principle, a duty of care in tort by an agent to a prospective purchaser could coexist with a contractual liability by the vendor to a purchaser. At pages 230-231, Hobhouse L.J. observed:
“In this situation, the obviously just result is that the liability to make good the purchaser’s loss should ultimately be borne by the party who has been unjustly enriched, that is to say, the vendor. But it does not follow that if, for any reason, the vendor is unable to make good the purchaser’s loss the purchaser should not be compensated by the person actually at fault, the solicitor or other agent who made the misrepresentation…
There are bound to be problems where the careless¬ness of the agent causes his principal’s property to be sold at an over-value but they are not avoided by refusing to recognise the tortious liability of the agent for his own fault; and there may be cases where the solicitors’ careless misrepresent¬ation has caused other types of loss to the purchaser which do not carry equivalent benefits to the vendor.”
39 Hobhouse L.J. acknowledged at page 224 that in cases such as Smith v. Bush [1990] 1 AC 831 and Caparo Industries v. Dickman [1992] 2 A.C. 605, there had been some criticism of the importance of the concept of assumption of responsibility, but that it was again recognised as important by Lord Goff of Chieveley in Henderson v. Merrett Syndicates Ltd. [1995] 2 A.C. 14 , in an important passage at page 181 which explained the importance of the concept in the analysis of the law of negligent misstatement:
“In addition, the concept provides its own explanation why there is no problem in cases of this kind about liability for pure economic loss; for if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss which flows from the negligent performance of those services. It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry whether it is “fair, just and reasonable” to impose liability for economic loss – a point which is, I consider, of some importance in the present case. The concept indicates too that in some circumstances, for example where the undertaking to furnish the relevant service is given on an informal occasion, there may be no assumption of responsibility and likewise that an assumption of responsibility may be negatived by an appropriate disclaimer.”
This passage reinforces the continuing relevance of the concept of assumption of responsibility, and the significance of the disclaimer in analysing whether such a responsibility has been assumed.
40 Applying this principle to the case of the estate agents providing a statement of acreage, Hobhouse L.J. had regard to the structure of the transaction. Having observed that in many cases the estate agent’s fee may be paid indirectly by the purchase price, and in principle therefore, there was nothing to negative the duty of care, he continued at page 235:
“In a transaction for the sale of land, it will normally be contemplated that there will be pre-contract enquiries which will be used by the prospective purchaser to obtain specific represen¬tations verifying important facts. Similarly parties will very frequently instruct a surveyor to carry out a structural survey before deciding to make an offer or to exchange contracts. Thus, it does not follow that a representation, although intended to influence the representee, will be relied upon in the relevant way without an intermediate check. It is therefore necessary to examine further the significance of the representation in the transaction. This is not something which is peculiar to estate agents nor does it amount to some special principle of qualified liability for estate agents.”
41 In that particular case, Hobhouse L.J. considered that the disclaimer put the case on all fours with the decision in Hedley Byrne. He then addressed the contrary argument at page 237:
“The judge avoided this conclusion by approaching the disclaimer as if it were a contractual exclusion. On such an approach it would need to be strictly construed and the argument was available that it did not as such cover an oral statement. But that is not, in my judgment, the right approach. It is not an exclusion to be construed. The right approach, as is made clear in Hedley Byrne, is to treat the existence of the disclaimer as one of the facts relevant to answering the question whether there had been an assumption of responsibility by the defendants for the relevant statement. This question must be answered objectively by reference to what a reasonable person in the position of Mr McCullagh would have understood at the time that he finally relied upon the representation. In this context, it is obvious that the statement that the acreage of the property is 0.92 was a statement which was taken from the particulars and that the defendants were not assuming responsibility for that statement.”
42 Hobhouse L.J. also observed at page 239 that:
“The normal structure of contracts for the purchase of land is that the intending purchaser, before he exchanges contracts, is able through his own solicitor to interrogate the proposed vendor and is entitled to rely upon the answers to such enquiries as representations which have induced the contract with all the legal consequences that flow from that situation. The use of disclaimers to insulate the estate agent, and the estate agent’s principals, from responsibility for representations made by estate agents is commonplace and is the normal basis upon which house sale transactions are carried out every day across the country.”
43 Accordingly, Hobhouse L.J. considered that the disclaimer was not an unfair contractual term. While that specific issue does not arise in this case because the plaintiff was not, here, dealing as a consumer, it is, in my view, relevant to the overall question as to whether a duty of care arose or was negatived by the terms of this disclaimer. As I have said earlier, the proximity of the parties here is created by the contract between the purchaser and the vendor, and arguably the contract between the vendor and its agents. It is relevant to know how those contracts assigned the risk of error. Finally, it is notable that Nourse L.J., concurring, was prepared to agree with Slade L.J. that even in the absence of a disclaimer no duty of care arose.
44 This is obviously an important case, and if it correctly represents the law of Ireland, it is strong authority against the plaintiffs in this case. . It is important to recognise that it is not possible to distinguish Mc Cullagh on the basis merely that the disclaimer was in more extensive terms than the disclaimer in this case. Recognising perhaps the difficulty posed by the disclaimer, the plaintiff in Mc Cullagh had focused entirely on an oral statement of acreage made to the plaintiff when he was viewing the property and before he had received the printed particulars. This case, therefore, is authority for the continued application of the approach set out in Hedley Byrne v. Heller [1964] AC 465 where the disclaimer is viewed not as an exemption clause, but rather as part of the evidence as to whether a risk had been assumed, and a duty of care arisen.
45 The narrow point made by the plaintiff/respondent does not seek to argue that Irish law is in any respect different to that set out in Hedley Byrne and McCullagh v. Lane Fox and Partners Ltd. Rather, it is simply that the words in the disclaimer here, which are concededly less clear and less elaborate than those in the McCullagh case, for example, are simply not sufficient to exclude or avoid liability. It seems to me, however, for the reasons already addressed, that this is not the correct approach. The disclaimer should not be approached in an attempt to exclude a pre-existing liability whether contractual or tortious, and accordingly strictly construed. Instead, it is to be considered as one, albeit an important, piece of evidence as to whether the agent, retained by the vendor, assumed responsibility in this case to the plaintiff purchaser (without consideration) for the accuracy of the statements contained in the particulars. This must be assessed in the light of all of the facts, and in particular, the structure of the transaction which takes place in a relationship between each of the parties controlled by contract in familiar and well understood terms. It is relevant, in my view, that the special relationship and assumption of liability are alleged to arise from the terms of particulars made available generally rather than from any specific interaction between any employee of Jones Lang Lasalle and the plaintiff. It is also relevant that the general structure of the transaction is one where the agent acts for and owes duties to the vendor. Again, it is not irrelevant that the purchasers did not apparently obtain any provision in the contract, in a warranty or otherwise in relation to the size of the premises. It would be unusual for an agent to undertake a gratuitous responsibility when the principal, who was receiving consideration, had not. Again, it is relevant that even though this was a substantial commercial transaction, which can carry significant fees for the agents, (suggested to be in the region of 1.5%) that the element of that fee which should represent profit to the agent is a tiny fraction of the potential liability here, excluding costs. Again, it would be unusual that an agent would gratuitously assume that risk. Against that background, I cannot see the disclaimer as anything other than an assertion, unsurprising to anyone dealing in the property market, that Jones Lang Lasalle was not responsible for the accuracy of anything contained in the particulars.
46 I think this conclusion can be tested in a number of ways. The plaintiff’s case is undoubtedly strengthened by the fact that the error here is in relation to measurements, which would fall into the area of expertise and responsibility of the agent. But the particulars are not confined to the measurements, on which almost all of the attention was focused in this case. Among a number of other things, details are given in relation to tenure, zoning, development potential and likely vacant possession. It is difficult, if not impossible, to read the particulars including the waiver/disclaimer against the known background of the transaction and its well understood structure as being nevertheless an assumption of responsibility on the part of the agents in respect of these matters. But if this is the case, then it is equally, if not more difficult, to read the particulars as assuming responsibility for errors in measurements alone. No such distinction is discernible in the terms of the disclaimer. By the same token, given the very substantial amounts involved in property transactions, it hardly makes sense to understand Jones Lang Lasalle as precluding any duty of care in respect of minor matters, but assuming responsibility for errors (however large or small in themselves) which could give rise to very extensive liability. There is one further feature which is difficult to accommodate if the plaintiff is correct, which was touched on in the judgment in McCullagh v. Lane Fox and Partners Ltd. On the assumption that a purchaser was induced to pay too much for premises and should now be compensated, then the natural source of that compensation is the vendor who, at least on this hypothesis, has been unjustly enriched in obtaining more than they should have for the premises. In a contractual claim, the plaintiff purchaser will be able to recover that amount from the vendor, and if the agent was responsible for the error, the vendor might be able to obtain indemnity in respect of any consequential costs. But if an independent duty of care arises in tort on the part of the agent, then payment of damages by the agent to the purchaser will leave the vendor with, on this hypothesis, an undeserved gain. This lack of congruence of remedy, if not fatal to the plaintiff’s case, is at least troubling and requires to be addressed.
47 I accept that, adopting a strict approach, it might be possible to argue that the reference to “every care” being taken is itself a form of representation that such care was taken which, it must be assumed, did not occur in this case. However, that is, I think, an unduly legalistic reading of the clause, designed to defeat it rather than to understand it in its context. It is necessary to read the disclaimer fairly and in its entirety. If read as not excluding, but rather positively accepting responsibility for the risk of error due to negligence, it becomes not merely surprising, but superfluous, since arguably such a duty would arise in the absence of a disclaimer. Again, it might be said, adopting the highly strict approach to exemption clauses, that the disclaimer here is apt to exclude a contractual liability for error without fault, but does not exclude liability for negligence. But such an interpretation is highly implausible. Why would a party, in framing a disclaimer, seek to exclude liability under a contract which it does not have, but not to exclude, indeed positively to embrace the only liability which might arise to a party with whom it did not have a contract controlling the terms of the relationship? Again, it might be said (although I do not think this was argued) that the fact that the disclaimer uses the passive voice might mean that it sought to exclude the contractual liability of the agent’s principal, in this case the vendor. Again, this is, however, highly implausible, particularly if it is read as excluding a potential contractual liability, which did not in fact arise, on the part of the vendor, but accepting direct liability on the part of the agent (and for which the agent obtains no payment from any party) for an error attributable to negligence. The provision asserting that every care has been taken cannot be taken out of context or divorced from the structure of the sentence in which it is placed. In my view, the most reasonable interpretation of the disclaimer, and thus the manner in which it would be understood at the time, was that while Jones Lang Lasalle asserted that they took every care in the preparation of the particulars and believed them to be correct, if they did not do so, and/or if the particulars were incorrect, they did not accept responsibility. If the detail of the particulars was important to a prospective purchaser, he or she should verify them independently or, if they did not, they would bear the risk of any inaccuracy.
48 The evidence here that parties did not routinely check measurements (although lenders apparently do require such detail) and that no one in this case came back to the vendors or to Jones Lang Lasalle to suggest that the measurements were wrong (which might suggest that none of the other prospective purchasers measured the premises) does not, in my view, lead to a conclusion that in this market, there was a general assumption that agents accepted responsibility for the accuracy of the particulars. These premises were themselves marketed for a development opportunity which was no doubt the primary factor in setting its value. There is no evidence that any other purchaser considered the premises to be a letting opportunity and still less that the figures were considered to be crucial to the value of the bid. Indeed, in that regard, if the letting value of the property determined its value on the market, it is difficult to understand how Jones Lang Lasalle’s initial advice was so far removed from the price ultimately achieved. All this evidence may provide one further insight in to the progress of the property market even in the early 2000s, but it cannot, in my view, go so far as to establish an assumption of responsibility by Jones Lang Lasalle or other agents of a duty of care in relation to particulars made generally available on the market without more.
A Broader Approach
49 On one reading of the judgment of the High Court, however, it can be said that the High Court took a broader approach which could have important consequences for the law of negligence generally. Rejecting an argument based on Caparo Industries Plc. v. Dickman [1990] 2 AC 605, and relying on the judgment of the Supreme Court in Wildgust & anor v Bank of Ireland & anor [2006] 1 IR 570, the High Court held that “[p]rima facie therefore, the relationship between the plaintiff and the defendant was sufficiently proximate to give rise to a “special relationship” of the kind identified by the Supreme Court (Geoghegan and Kearns JJ.) in Wildgust”. It had been argued on behalf of Jones Lang Lasalle that the disclaimer precluded the existence of a special relationship and was, furthermore, a justification for rejecting the existence of duty of care based on the third element in Caparo (and adopted in Glencar), namely that it was an element making it unfair, unjust and unreasonable to impose a duty of care. The High Court rejected this and, assuming a prima facie duty of care, posed the question:
“It seems to me that the question for determination in relation to the ‘waiver’ is whether its presence within the brochure and its precise terms are together sufficient to exclude the defendant from liability to the plaintiff in respect of negligence by the defendant in the measurement of the floor area of the property and negligent misstatement on the part of the defendant in publishing the incorrect measurements of the floor area. On the evidence I do not believe that they are sufficient.”
50 On this reading, the judgment runs together a claim for a negligent act (of measurement or non-measurement) and negligent misstatement (contained in the particulars). The analysis then proceeds on the assumption that there exists a duty of care, and the question becomes whether the disclaimer is sufficient to exclude that duty of care. This is of course the analysis applicable to an exemption clause which seeks to limit a contractual or tortious liability. It is a short step from that analysis to the conclusion that the waiver clause here is insufficient. At the following paragraph, the High Court judge expressed himself in the following terms:
“If the defendant wished to reserve to itself the right, (a) to publish within its sales brochure, precise measurements which were in fact grossly inaccurate and, (b) to relieve itself of liability to the category of persons to whom the brochure and its contents were directed, then there was an obligation upon the defendant to draw to the attention of the plaintiff and other prospective purchasers the fact that the seemingly precise measurements published were likely to be wholly unreliable and should not be relied upon in any circumstances.
By including within its brochure an enigmatic sentence in small print claiming to have taken particular care in the preparation of all of the particulars within the brochure but advising prospective purchasers to ‘satisfy themselves as to the correctness of the information given’ the defendant failed to discharge that obligation.”
51 It is I think apparent that the judge did not seek to offer any interpretation of the disclaimer, but instead simply found it ineffective to exclude a prima facie duty of care. This, as already observed, is to apply the standard approach to contractual exemption clauses which seek to exclude a liability which otherwise exists, whether in contract or in tort, and therefore, the approach represents a significant (if unacknowledged) movement away from the analysis in Hedley Byrne v. Heller [1964] AC 465, where the disclaimer is considered simply as part of the evidence as to whether a duty of care arose in the first place. The approach in the High Court appears to be based upon a blurring of the distinction between liability for a negligent act and liability for a negligent statement which was identified in Hedley Byrne v. Heller and the succeeding case law, and in doing so, reliance on the decision of the Supreme Court in Wildgust.
52 I do not doubt that the resolution of standard claims for injuries and loss which are disposed of in civil courts on a daily basis, do not call for any careful consideration of legal analysis or precise language or reference to case law. If the function of this Court was simply to make some broad assessment of whether any particular disposition in such a case should be allowed to stand, then I would have no real difficulty with the result in this case. If it were to be reduced, as at times the submissions seem to suggest it should be, to a form of reverse beauty contest between a purchaser/investor making a bid for substantial property on the basis of a back-of-the-envelope calculation in reliance on information which he did not himself commission or pay for, and a professional firm which provided erroneous measurements, it might be a close call but I might favour the individual investor over the corporate firm, albeit without much enthusiasm. But I do not think the function of this Court can be reduced to the resolution of individual cases on a basis that can be plausibly considered fair, or at least not obviously unfair. In truth, if a plausible case could not be made for both sides in a case, the parties involved would rarely engage in costly litigation. If all this Court had to do was to make broad ad hoc conclusions on equally broad judgments made in individual cases in a trial court, then the jurisprudence in this area would quickly become little more than an exercise of unbounded discretion normally stigmatised as the antithesis of justice according to law. The case law in the area would rapidly become little more than that “codeless myriad of precedent, that wilderness of single instances” criticised by Tennyson. This is more than an objection that the law cannot be fitted in to some pleasing intellectual pattern. If the decisions of the appellate courts are only individualised determinations on the grounds of some general conception of fairness, then all cases would, in principle, have to be appealed since it would be impossible to predict in any given case the likely outcome, other than by a process of amateur psychological forecasting some distance removed from legal analysis.
53 But, as I conceive it, the function of this Court is, with the discipline, structure, illumination and focus provided by the individual case, to analyse the law in such a way as may permit issues to be resolved without the considerable cost in time and money involved in litigation and appeals in other cases. The results should not merely be certain and predictable, but also promote rational, efficient and fair behaviour. In my view, it is necessary, therefore, to look more rigorously at the analysis offered here.
54 First, I do not think that the difficulties in this case can be avoided by treating the case as one of a negligent act to which the general principle in Donoghue v. Stevenson applies. In many cases of negligent misstatement, it is possible to identify an antecedent, allegedly negligent act. Thus, the accountant who wrongly certifies a company’s accounts may have either failed to investigate the matter sufficiently, or have wrongly analysed the information available (Caparo Industries v. Dickman [1992] 2 A.C. 605, Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164). The banker who wrongly states that a company is good for such debts as it may incur may have failed adequately to investigate its financial status, or misconstrued the information available. (Hedley Byrne v. Heller [1964] AC 465). It is, as Keane C.J. pointed out in Glencar, wrong to speak of somebody being negligent in the abstract. Negligence in law means a breach of an existing duty of care. Assuming for the moment, however, that the defendants in this case were careless in the way in which they measured (or indeed failed to measure) the premises, they did not owe any duty to prospective purchasers when they did so and did not cause them any loss as a result of that act, or failure to act, without more. Any duty, contractual or tortious, was owed at that point to the client. The question of a potential duty of a prospective purchaser, including the plaintiffs, and the question of any loss being incurred only arose when the product of the measurement exercise was included in the brochure as a statement and provided to prospective purchasers. This conclusion can, indeed, be tested by considering that if the statement had not been made and provided to prospective purchasers (most obviously by being contained in Jones Lang Lasalle’s brochure), it could not be said that any claim could arise on the part of the plaintiff, even if Jones Lang Lasalle had been grossly careless in the act of measurement. The case must be analysed, in my view, as a case of negligent misstatement.
55 I also consider that the argument, attributed in the judgment to the defendant, that the disclaimer was to be considered as addressing the so-called third limb of the test set out in Australia in Sutherland Shire, approved in the United Kingdom in Caparo Industries v. Dickman [1992] 2 A.C. 605 and adopted in this jurisdiction in Glencar Explorations p.l.c. v. Mayo County Council [2002] I.R. 84, i.e. whether it was just and reasonable to impose a duty of care, was unhelpful. Caparo did not involve any disclaimer. Indeed, if the auditor’s statement on the statutory accounts that they provided a true and fair view of the business of the company had contained a disclaimer (assuming that was legally possible), it is probable that the issue in Caparo would not have arisen at all. The question in Caparo was whether the very particular circumstances created in that case by the statutory obligation on a company to employ an auditor, and on that auditor to provide his or her opinion as to whether the accounts provided a true and fair view of the business of the company, could give rise to a duty of care to parties who invested in, or perhaps acquired a company in reliance on the financial picture presented by the accounts. The House of Lords considered that in the circumstances, although there was sufficient proximity, it would not be fair and reasonable to hold that auditors in such cases owed a duty of care to third parties with whom they had no contractual relationship. It may well be that some of the factors that were in the background in that analysis may also be relevant to the issue here. But here the question is whether, in the light, in particular, of the disclaimer, there was, in truth, sufficient proximity to give rise to a duty of care. It was the brochure which created the potential relationship between Jones Lang Lasalle and the plaintiff, and the question was, in the light of the terms of the brochure, whether such a relationship was created as to give rise to a duty of care so that Jones Lang Lasalle would be responsible to the plaintiff for any error in the particulars.
56 It is also fair, I think, to acknowledge that although this case cannot, in my view, be treated as one of liability for a negligent act, that that does not dispose of the argument based upon Wildgust. The plaintiff sought to put the case on a somewhat different basis. It was argued that Wildgust now permitted a court to approach a case of negligent misstatement on the same legal basis as any claim made in reliance on negligent acts, and in consequence, that the traditional issues arising in the area of negligent misstatement such as special relationship, assumption of responsibility, reliance etc. could be dispensed with, and the issue approached simply on the basis that the relationship gave rise to a duty of care, and whether the disclaimer successfully excluded any liability for breach of that duty. That would, of course, be a very large movement away from the law which was thought to have emerged from Hedley Byrne v. Heller [1964] AC 465 and those cases in this jurisdiction which followed it. However, this reading of Wildgust has received some impetus from some of the commentary on the case and it is accordingly necessary to consider that decision in some greater detail.
57 The facts in Wildgust were very complex, unusual and far removed from the situation in this case. Thus, the case might only be relevant here if it is understood as stating some principle (or refinement of principle) of general application. The first named plaintiff, Mr. Wildgust, was the principal of a business (“the company”) which was the second named plaintiff, and which borrowed money from bankers, Hill Samuels (“HS”). Security for that loan was a personal guarantee from both Mr. Wildgust and his wife which was, in turn, supported by life insurance policies taken out with Norwich Union (“the insurers”) at the behest of the bank on the lives of Mr. Wildgust and his wife, and which were mortgaged to the bankers. This is, of course, a common arrangement. Premiums were paid by direct debit by the company’s bank account with Bank of Ireland. There was thus a reasonably complex web of legal relationships between the plaintiff, his wife, the company, the bankers (Bank of Ireland) who made the direct payment to the insurers Norwich Union, and finally the bankers (HS), who had advanced the loan, which was secured by the personal guarantees, the same themselves supported by the insurance polices.
58 It appears that due to a problem on one occasion with the direct debit, the premium was not paid. The insurers notified the bank (HS) (but neither of the plaintiffs nor Mrs. Wildgust) that the premium was unpaid, and if left unpaid that the policy would lapse. This was particularly relevant because Mrs. Wildgust was unfortunately in poor health, having been diagnosed with cancer. A manager in HS contacted Mr. Wildgust, who assured him that the premium had been paid by bank draft. In fact, that draft had been returned (properly it seems) to the second named plaintiff company as an excess payment. Commendably, it appears that HS was still concerned, and the manager in the bank contacted the insurance company and was assured (it appears bona fide but erroneously) that the premium had indeed been paid and the policy was in force. This, indeed, was the same mistake under which Mr. Wildgust was labouring. Accordingly, the bank manager took no further steps, and neither sought to ensure that the premium was paid by Mr. Wildgust or the company, nor to exercise the right that the bank had to make premium payments to preserve the policy. If HS had been informed that the premium was unpaid, they would have paid the premium to keep the policy alive. The information that the policy was believed by the insurers to be in full force was not communicated to Mr. Wildgust. In due course, unfortunately, his wife died, but the insurers refused to pay on the policy, contending that it had lapsed by reason of the non-payment of the premium. Proceedings were commenced by Mr. Wildgust and the company against a number of defendants, but ultimately were reduced to a claim against the insurers. The initial proceedings were somewhat confused, and indeed the claim in negligent misstatement was only added after a successful appeal to the Supreme Court which permitted the amendment of the claim. When that case proceeded in the High Court, the plaintiff’s case against the insurers was dismissed on the grounds that while the insurers had negligently assured HS that the policy was in force and as a result of which HS had neither sought to have a premium paid nor paid it themselves, nevertheless the statement made by the insurers to HS had not been communicated to the plaintiffs, and therefore it could not be said that the plaintiff, Mr. Wildgust, and his company had relied on the negligent statement. On appeal to the Supreme Court, (Denham, Geoghegan and Kearns JJ.) allowed the plaintiff’s appeal. Lengthy and considered judgments were delivered by Geoghegan and Kearns JJ.
59 First, I should say that I have little doubt that the result in Wildgust was correct and just. It is also apparent, however, that the legal analysis was complicated. There may have been many potential routes which would have allowed the plaintiffs to recover against the insurance company, although some of them may have required some degree of novelty. It may be correct to analyse the case as one of negligent misstatement, and it may be that in future years, it will be possible to place this case in its proper place in that jurisprudence, whether as an outlier representing a very specific finding depending on particular and unusual facts, or as an important straw in the wind supporting a new and broader approach, or something in between. But I think it is clear at this stage that Wildgust cannot be taken as itself justifying a single unified approach to all cases of negligence, whether of negligent act or misstatement, and jettisoning traditional considerations such as proximity, and undertaking of responsibility in such a way that this case can be approached as one in which there is a duty of care and the only relevant consideration is whether liability was successfully excluded by the terms of an exemption clause.
60 First, and most obviously, Wildgust was not treated by the Court as representing a substantial revision of the general law of negligence. Indeed, if the case had been considered to call for such an exercise, it would not have been heard by a court of three, and if the Court considered that substantial issues of principle arose, the case could have been adjourned to be heard by a larger court. In fact, as Geoghegan J. observed, “the facts of the case were most unusual and there was no reported case sufficiently analogous to be of assistance”. The case was dependent on those unusual facts and understood by the Court to be, at most, a modest extension of the existing law to take account of the difficulties posed by the almost unique set of circumstances posed in that case. Geoghegan J. did observe that concepts running through the English case law relating to negligent misstatement and representation such as reliance, assumption of risk, special relationship, relationship to contract, or even, as he described it, the “will- o’- the- wisp” concept of “proximity” might not be all that necessary. This observation was immediately followed, however, by the statement that he was prepared to assume for the purposes of the case “that the law of negligent misstatements is a separate code from the law of negligent acts”. Furthermore, both of the judgments carefully analysed and considered the leading cases such as Hedley Byrne v. Heller and certainly do not suggest that the analysis in that case has been entirely discarded.
61 The central issue raised in Wildgust, and the issue for which it is authority, is on the question of reliance. That was the issue upon which the plaintiffs failed in the High Court and succeeded in the Supreme Court. The decision of the Supreme Court was, in effect, that in the particular and unusual circumstances of the case, the plaintiff did not have to prove personal reliance on the assurance given by the insurers to the bank that the premiums had been paid and the policy was in force. Indeed another way of looking at that case is perhaps that given the close relationship between the plaintiffs and the bank in relation to the insurance policy, the plaintiffs had a community of interest with the bank and were entitled to rely upon the representation made to the bank, and the bank’s reliance on it. But however viewed, it is clear that the case is only authority for the proposition that it is not necessary to show individual reliance by the plaintiffs in a particular situation like that of Mr. Wildgust. Indeed, the case is not authority for the proposition that reliance is not necessary. Instead, it established that the plaintiffs in that situation were entitled to rely on the reliance placed by HS on the assurance given. It is not authority for the proposition that cases of negligent misstatement do not require a consideration of whether there has been an assumption of risk on the part of the maker of a statement, or more broadly whether the circumstances are such as to give rise to a duty of care.
62 Even if Wildgust was taken at its broadest as suggesting, perhaps, that by analogy with the decision in that case it might, in any given case, be possible to dispense with a requirement of an assumption of responsibility that, in my judgment, would still not avail the plaintiffs in this case. The logic of Geoghegan J.’s judgment was that those tests were essential control mechanisms necessary to limit the scope of liability in cases where a statement was capable of general dissemination, giving rise to the possibility of indeterminate liability of an indeterminate amount to an indeterminate group, as in Ultramares v. Touche (1931) 255 NY 170. In Wildgust, Geoghegan J. found there was no need for such a control mechanism because the particular circumstances of the case meant that any statement was not generally disseminated. Instead both the individuals affected by the statement (arguably a single individual, the holder of the insurance policy, albeit that the interest was here divided between the individual and the lender to whom the policy was assigned) and the amount of financial exposure if an error made (the amount of the policy) were known (or capable of being known) and limited, at the time it was made. But the same cannot be said here. The statement relied upon by the plaintiff here was made in a brochure which was generally available. There are in truth a number of potential claims arising from this type of error. In addition to a purchaser like Mr. Walsh who buys property and finds it smaller than he claims he expected, it is possible to conceive of claims by a bidder who did not purchase the property because they thought it too big, or the disappointed developer underbidder who would have been successful if Mr Walsh had not paid “too much” for the premises. Both these claimants could claim that they lost a valuable property which increased in value dramatically in the subsequent years, particularly if the test is merely proximity forseeability and damage. It would be difficult to assess loss in such cases. These considerations are similar to those which have hitherto justified the limitations on liability for misstatement and are in sharp contrast to the considerations which influenced the Court in Wildgust. Furthermore, there was, in Wildgust, no disclaimer or waiver of liability, and thus that issue, which is central to this case, did not arise. In those circumstances, I do not think that Wildgust provides justification for adopting an approach to this case, which would involve a dramatic departure from the law of negligent misstatement, which has existed since it was first identified in Hedley Byrne v. Heller and approved in this jurisdiction in Securities Trust v. Moore and Bank of Ireland v. Smith. If that step is to be taken it would require more elaborate consideration (and by a full court) than was involved in this case or, indeed, in Wildgust. Accordingly, since in my view, on the established test, the plaintiff should not have succeeded, I would allow the defendant’s appeal.
63 Finally, and while not in any sense dispositive, it seems to me this is an outcome which provides clarity and promotes efficiency. This case is, ultimately, about the allocation of risk. At first blush, it might appear reasonable that the agent uttering the statement, should bear the risk of damage flowing from error, but when put in context this is less clear. Everyone involved in this transaction is selling or buying something. The provision of information or advice which can be relied on (and sued on if incorrect) has a value, sometimes substantial. Why should one party, be able to acquire this information backed by the resources of a substantial firm, for nothing? If the agent is unable to limit liability (or be confident that it can do so, which if a disclaimer is to be assessed with the severity of an exemption clause, it cannot be), it must seek to price its services at a sufficient price to cover the risk. Given the potential exposure to damages in property transactions and the costs involved in litigation, this is a substantial cost that must be built into the price either directly, or indirectly through insurance. This means that the cost is spread across the agent, its client, and all other purchasers. But those purchasers may have no interest in accuracy of information as to area, and will not be relying on the brochure in other respects, such as title or tenure. To these participants this would be an additional and unnecessary cost. It is only a special purchaser, who has a particular interest in the square footage for whom the information has value, and there is no reason why that purchaser should be able to avoid the cost of being able to rely on that information, and spread it across other market participants. It is reasonable in my view, that if a purchaser has a particular interest in reliance on the information in the brochure, the starting point should be that he should contract for that, either with the vendor, the vendor’s agent, or his own expert, and otherwise bear the risk of reliance in error, unless the agent has, and for whatever reason, clearly assumed the risk. This is, as I understand, the essential approach to claims of negligent misstatement in cases such as this and is consistent with the outcome of those cases, whether the claims succeed or fail. In my view, it cannot be said from the circumstances of this case (which here resolve themselves on the terms of the brochure), that the agent assumed that responsibility to this plaintiff.
Laffoy J.
Introduction
1. For just over half a century, starting with the decision of the House of Lords in Hedley Byrne & Co. v. Heller & Partners Limited [1964] AC 465 (“Hedley Byrne”), the law on liability in tort for negligent misstatement has been evolving in the United Kingdom. In general, the developments in the United Kingdom have been followed in this jurisdiction. However, a very fundamental question which arises on this appeal, namely, if, in what circumstances and to what extent a disclaimer of responsibility absolves a defendant supplier of information from liability for economic loss incurred by a plaintiff recipient of the information due to what would otherwise be negligent misstatement on the part of the defendant, has not previously been determined by this Court. In considering that question in the factual context of this appeal, this judgment will address:
(a) the essential facts which underlie the issues which have to be determined;
(b) the case as pleaded by the respondent on the appeal (“Mr. Walsh”), who was the plaintiff in the High Court, and the defence put forward by the appellant on the appeal (“JLL”), which was the defendant in the High Court;
(c) the judgment of the High Court delivered by Quirke J. (“the trial judge”) on 24th January, 2007 (which is reported at [2009] 4 IR 401);
(d) some features of the appeal;
(e) analysis of the evolution of the relevant legal principles applicable by reference to the jurisprudence of the United Kingdom and the extent of the recognition and application of that jurisprudence by this Court, leading to the identification of the relevant legal principles in this jurisdiction; and
(f) discussion and conclusions as to the application of the relevant legal principles to the relevant facts.
Factual background in outline
2. JLL acted as estate agent for Tucks Limited (“the Vendor”) in the sale of a commercial property by private treaty in the year 2000. The commercial property, which is hereinafter referred to as “the Property”, was situate at Upper Gardiner Street in the north inner city area of Dublin. Mr. Walsh entered into a contract to purchase the Property from the Vendor on 9th August, 2000 at the price of IR£2,342,000 and the sale was completed by a conveyance dated 28th September, 2000.
3. The evidence of Mr. Walsh at the hearing in the High Court was that he was in the management training and property business and that he had been engaged in the property business for twenty years. At the time, he owned premises in the north inner city area of Dublin, on Cumberland Street, which he was considering selling. He saw the Property advertised in a newspaper and he also received a call from Eamonn Maguire (“Mr. Maguire”) of Palmer McCormack, a firm of chartered surveyors, who was aware that he needed property in the north inner city area. Mr. Walsh, accompanied by Mr. Maguire, whom he testified was not acting as his advisor, went to view the Property on 13th July, 2000. Mr. Walsh was quite interested in the Property and he returned on the 14th July, 2000 to view it again. On that occasion, Woody O’Neill (“Mr. O’Neill”), a representative of JLL gave him a sales brochure, the contents of which will be outlined in detail later. On 21st July, 2000 Mr. Walsh received a telephone call from Mr. O’Neill who stated that there was substantial interest in the Property and that tenders had to be submitted by noon on 28th July, 2000. Mr. Walsh did submit a handwritten tender before noon on 28th July, 2000. However, before so doing he organised that what he described as a “condition survey”, that is to say, a survey as to the condition of the Property, be carried out by a chartered surveyor, Val O’Brien (“Mr. O’Brien”). The Property was surveyed by Mr. O’Brien on 27th July, 2000 and he gave a verbal report, not a written report, to Mr. Walsh.
4. As regards the amount tendered by Mr. Walsh, his evidence to the High Court was that his “calculations were made on the back of an envelope”, which one must interpret metaphorically rather than literally. The component of his calculations which is relevant for present purposes was based on the assumption that there would be available for letting, at rent estimated at IR£20 per square foot, approximately 10,000 square feet on the first floor of the Property. The source of the figure of approximately 10,000 square feet was JLL’s sales brochure.
5. Mr. Walsh’s tender was accepted by the Vendor and, as recorded above, the contract was subsequently executed and the sale was completed in September 2000.
6. As is outlined in the judgment of the High Court (at paras. 25 and 26 in the reported judgment), on Mr. Walsh’s instructions, Palmer McCormack provided a report in relation to the Property for Mr. Walsh’s banker, ACC Bank, which was dated 15th August, 2000 and which stated that the Property “comprises approximately 23,000 square feet gross on a site of almost a 1/3 of an acre”. It was stated in that report that Palmer McCormack had not measured the building and had taken the floor areas from JLL’s sales brochure. The report also stated that the “office accommodation at the first level comprises approximately 10,463 square feet gross . . .”. ACC Bank made no inquiries as to the accuracy of the measurements and did not itself procure a survey in relation to the Property.
7. JLL’s sales brochure was a two-page document. At the top of each page, the Property was described as “Industrial Property”. On the first page, over a colour photograph of the Property, it was stated:
“Excellent Redevelopment Opportunity”.
The address was then given and there followed the following particulars:
“2,142m2 (23,057 sq ft)
Site Area 0.13 Hectares (0.31 Acres)”
The Property was then described as: “Excellent city location close to numerous commercial and institutional occupiers”, with examples being given. It was also stated that it was “Zoned Z8”. At the bottom of the first page in very small print was a disclaimer in the following terms:
“Whilst every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given.”
8. On the second page there was a map indicating the location of the Property, which was described as a high profile two storey corner property and as comprising “a mixture of retail and showroom, storage and office accommodation over two floors”. Further particulars of the accommodation were then set out as follows:
“Accommodation
M2 Sq Ft
Ground Floor 1,170 12,594
First Floor 972 10,463
Total 2,142 23,057
Site Area 0.13 Hectares (0.31 Acres)”
There followed a further reference to “Opportunity”, which stated that the Property provided “an excellent redevelopment opportunity and, subject to the necessary planning permission, would be ideally suitable for residential, commercial or mixed scheme”. It was stated that vacant possession would be provided in Autumn 2000.
9. After the purchase was completed, in the context of negotiations in relation to letting the first floor of the Property to the Office of the Public Works, Mr. Walsh instructed Mr. O’Brien to measure the floor area of the Property. As is recorded in the judgment of the High Court (at para. 28), by letter dated 20th March, 2001 Mr. O’Brien advised Mr. Walsh that the total floor area of the Property was 21,248 square feet (8,573.5 square feet at first floor level and 12,674.6 square feet at ground floor level). In other words, in the brochure, JLL had overstated the total floor area by 1,809 square feet, equivalent to approximately 8% of the total floor area. The area of the first floor had been overstated by 1,809 square feet, being approximately 18% of the first floor area. While there was some discussion on the hearing of the appeal, by reference to documentation which had been discovered, as to how the mistake in the measurements of the internal areas and the inclusion of the erroneous measurements in the sales brochure had occurred, in reality, aside from reliance on the disclaimer, no case has been made on behalf of JLL that no fault lies with JLL for that mistake or the inclusion of the erroneous measurements in the sales brochure. Having said that, the proven facts merely show that JLL produced the sales brochure, which contained information in relation to the internal floor areas of the Property which was incorrect, and furnished it to Mr. Walsh as a potential purchaser. There is not any other evidence of action or activity on the part of JLL, which Mr. Walsh could assert amounts to negligence, as distinct from negligent misstatement.
10. Mr. Walsh initiated the High Court plenary proceedings the subject of this appeal against the appellant on 11th October, 2001 (High Court Record No. 2001 No. 15154P) claiming damages for negligence and negligent misstatement on the part of JLL. He was successful in the High Court and was awarded damages in the sum of €350,000 against JLL.
The case as pleaded
11. The basis of the claim of Mr. Walsh against JLL is set out succinctly and with clarity in the statement of claim. It is asserted that JLL was under a duty of care to Mr. Walsh in preparing and making available to him information and particulars in relation to the Property, in particular, to ensure that the information and particulars so provided would be accurate and that all reasonable skill and care would be used by JLL in furnishing such information and particulars. It is asserted that JLL knew or ought to have known that Mr. Walsh would rely on the contents of the brochure furnished to him by JLL and that JLL owed to Mr. Walsh a duty of care in respect of the brochure. That JLL expressly represented to Mr. Walsh that it had taken every care in the preparation of the particulars in the brochure and that by reason thereof JLL had assumed responsibility to Mr. Walsh for the contents of the brochure and was under a duty of care to ensure its accuracy and to ensure that every care had been taken in its preparation is pleaded in the statement of claim. Following reference to the errors in the brochure in relation to the floor area, it is asserted that JLL “was guilty of negligence and negligent misstatement”. Particulars of breach of duty and negligence, including negligent misstatement, are itemised, which, in general, assert alleged failure to take reasonable care in relation to the preparation and contents of the brochure. The claim is represented as a claim for “damages for negligence and negligent misstatement”.
12. JLL in its defence traverses all of the matters pleaded in the statement of claim or puts Mr. Walsh on proof thereof. However, it is pleaded by way of defence that the brochure clearly stated that the particulars contained therein were not warranted and that any intending purchasers should satisfy themselves as to the correctness of the information given. Further it is expressly asserted that there was never any duty of care arising as between JLL and Mr. Walsh sufficient to found any cause of action in negligence or in negligent misstatement. That JLL assumed no responsibility for any information upon which Mr. Walsh places reliance is also pleaded, as is that any loss or damage suffered by Mr. Walsh was caused solely, or alternatively contributed to, “by reason of negligence or contributory negligence” on the part of Mr. Walsh in failing to carry out a survey of the Property before entering into the contract to purchase the Property.
13. In the light of what is stated earlier (at the end of para. 9) as to the proven facts and evidence, and having regard to Mr. Walsh’s claim as pleaded as outlined, in my view, the claim for negligence must be regarded as a claim for negligent misstatement. Accordingly, the basis on which I propose to address the issues on this appeal is by reference to the law on negligent misstatement as distinct from general negligence.
The judgment of the High Court
14. Before outlining the relevant findings in the judgment, it is appropriate to record that what is before this Court is counsel’s agreed note of the evidence adduced in the High Court, not a transcript. The provision in small print at the foot of the first page of the brochure is variously described in the agreed note as the “waiver” or the “disclaimer”. In my view, “disclaimer” is a more appropriate description and it is the description I propose to use.
15. The evidence of Mr. Walsh and of two chartered surveyors who testified is mentioned in the judgment, as well as the evidence of Nigel Healy (“Mr. Healy”), being a director of JLL and a chartered surveyor. One of the chartered surveyors, Barry Smith (“Mr. Smith”), who was described in the agreed note as a chartered surveyor and a partner in Messrs. deVere White Smith and as having been in the valuations and property business for over forty years, testified on behalf of Mr. Walsh. The other, Peter Rowan (“Mr. Rowan”), who was described as the CEO of the Dublin office of Lambert Smith Hampton, which specialises in commercial property, testified on behalf of JLL. While the evidence of each of those witnesses was partly directed to quantification of the loss alleged to have been incurred by Mr. Walsh by reason of the actual internal floor area of the Property being less than had been stated in the brochure, their evidence also addressed the issue as to whether JLL had liability to Mr. Walsh for negligent misstatement.
16. In briefly outlining the evidence of Mr. Walsh in the judgment (at para. 30), the trial judge stated:
“He said that purchasers of commercial property believed that ‘waivers’ of the type relied upon by [JLL] were to be found in most auctioneers’ brochures and were intended to safeguard auctioneers from liability in respect of ‘minor’ miscalculations.”
17. It was also recorded in the judgment (at para. 32) that Mr. Smith stated in evidence that it would be most unusual for investors to measure properties before offering to purchase and that he had never encountered circumstances where that had occurred. Mr. Smith said that most auctioneers had some form of disclaimer on their brochures and that these disclaimers comprised “. . . an effort to protect the agent from relatively minor errors”. Mr. Smith also said that he would expect auctioneers’ measurements to be correct and he would expect purchasers to rely on the measurements. As regards Mr. Rowan’s evidence, it was recorded (at para. 33) that he stated that a prudent investor or intending purchaser should carry out a detailed inspection and measure all floor areas before purchasing a property. He said that it would not be normal or prudent and that it would not be considered acceptable to rely solely on the measurements set out in sales brochures prepared by a vendor’s agent. As was pointed out by counsel for JLL, the judgment discloses that contradictory evidence was given by the two chartered surveyors who testified.
18. It was recorded (at para. 34) that Mr. Healy described the disclaimer as a form of advice to a purchaser to carry out inspections and measurements as a form of “due diligence” and, further, that Mr. Healy said that the measurements in the brochure were as a “general guide” to prospective purchasers.
19. The first issue identified by the trial judge in his judgment was whether JLL owed a duty of care to the plaintiff to ensure that the calculation of the floor area of the Property which JLL published in its sales brochure was accurate. In addressing that question, the trial judge referred to a number of authorities which will be considered in detail later, including, inter alia, the following:
(a) Hedley Byrne;
(b) Smith v. Eric S. Bush [1990] 1 AC 831 (“Smith”);
(c) Caparo Industries Plc v. Dickman [1990] 2 AC 605 (“Caparo”);
(d) McCullagh v. Lane Fox & Partners Ltd. [1996] PNLR 205 (“McCullagh”);
(e) Glencar Exploration Plc v. Mayo County Council (No. 2) [2002] 1 IR 84 (“Glencar”); and
(f) Wildgust v. Bank of Ireland [2006] 1 IR 570 (“Wildgust”).
20. The trial judge then set out certain conclusions (at paras. 45 to 49): that the information contained in JLL’s brochure was directed towards a very specific and identifiable category of persons, namely, potential purchasers; that it was to be expected that the potential purchasers would rely upon information contained within the brochure when deciding whether or not to offer to purchase; and that, prima facie, the relationship between Mr. Walsh and JLL was sufficiently proximate to give rise to a “special relationship” of the kind identified in Wildgust.
21. In addressing the effect of the disclaimer published at the foot of the first page of the brochure, the trial judge noted (at para. 50) that it had been argued on behalf of JLL that the disclaimer precluded the existence of the “special relationship” contended for on behalf of Mr. Walsh, it having been argued on behalf of JLL that the existence of the disclaimer introduced into the case the “third element” recognised in Caparo, making it unfair, unjust and unreasonable for the High Court to impose upon JLL a duty of the kind contended for on behalf of Mr. Walsh. The trial judge rejected JLL’s argument, stating (at para. 51):
“The information within the brochure was published by [JLL] for the express purpose of influencing a limited number of identifiable persons. The publication of the ‘disclaimer’ was immaterial to that fact. [Mr. Walsh] was a person to whom the brochure was expressly directed and he was influenced by the information published within the brochure. I am satisfied on the evidence that he relied upon the measurements within the brochure when calculating his precise bid or ‘tender’ for the purchase of the property.”
22. The trial judge then (at para. 52) identified the question for determination in relation to the “waiver” as whether its presence within the brochure and its precise terms are together sufficient to exclude JLL from liability to Mr. Walsh in respect of negligence by JLL in the measurement of the floor area of the Property and negligent misstatement on the part of JLL in publishing incorrect measurements of the floor area. He held that, on the evidence, it was not sufficient. He stated (at para. 53 et seq.) that he accepted the evidence of Mr. Walsh and the chartered surveyors that it is not, and has not in the past been, the practice for prospective purchasers of commercial property in the Dublin area to measure the floor areas of properties before offering to purchase. By his reference to “the chartered surveyors” it is inferred that the trial judge was referring to the chartered surveyors called as witnesses by Mr. Walsh, namely Mr. O’Brien and Mr. Rooney. He stated (at para. 54) that he also accepted the evidence of “the chartered surveyors” that the “waiver” and other similar “waivers” published by reputable auctioneers are, and have in the past been, regarded by potential purchasers as relating “to relatively minor measurement errors”. While he accepted also (at para. 55) the evidence adduced on behalf of JLL, that is to say, the evidence of Mr. Rowan and Mr. Healy, that prudent purchasers should, where possible, measure floor areas and carry out detailed inspections before purchasing properties, he was satisfied, on the evidence, that, where detailed and precise measurements of commercial properties are provided within the brochures of experienced and reputable auctioneers, it is the practice for prospective purchasers to rely on the accuracy of those measurements, subject to potential minor miscalculations.
23. Having commented (at para. 59) that it was difficult to accept that “every care has been taken in the preparation of these particulars”, because the floor area was overstated to a degree which was seriously misleading to prospective purchasers, the trial judge went on to reject the argument made on behalf of JLL that the provision in the disclaimer that the particulars “are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given” was sufficient to relieve JLL of liability in the circumstances of the case. Having identified the duty of care which Mr. Walsh contended was owed to him by JLL as being to ensure that the information, which it published in the brochure and provided for the alleged benefit of a limited category of persons (including Mr. Walsh), was reasonably accurate in the circumstances, the trial judge went on to say (at para. 63):
“If [JLL] wished to reserve to itself the right (a) to publish within its sales brochure, precise measurements which were in fact grossly inaccurate and (b) to relieve itself of liability to the category of persons to whom the brochure and its contents were directed, then there was an obligation upon [JLL] to draw to the attention of [Mr. Walsh] and other prospective purchasers the fact that the seemingly precise measurements published were likely to be wholly unreliable and should not be relied upon in any circumstances.”
The trial judge concluded (at para. 64) that JLL failed to discharge that obligation by including within the brochure “an enigmatic sentence in small print”.
24. Referring again to the “evidence of the practice adopted by buyers and sellers of commercial property in Dublin at the relevant time”, the trial judge stated (at para. 65) that JLL’s “disclaimer” was a quite inadequate means of notifying prospective purchasers that the seemingly precise measurements of the floor areas so prominently published within the sales brochures were wholly unreliable. It followed, he stated (at para. 66), that the “waiver” was not effective to relieve the appellant in respect of negligence and negligent misstatement of the type contended for on behalf of Mr. Walsh.
25. The trial judge then went on to find on the facts that the loss and damage claimed on behalf of Mr. Walsh was a loss which was reasonably foreseeable by JLL, pointing to a number of facts: that the total rental income recoverable from commercial property will often be the principal factor in the calculation of value; that the floor area of the premises is an important factor in establishing the total rental income from the property; that JLL knew, or ought to have known, that Mr. Walsh would estimate the value of the Property, and, accordingly, the amount which he was prepared to bid for the Property, with particular reference to the rental income recoverable from the Property; that an overstatement of the floor area of the Property would give rise to an inflated estimate of the rental income recoverable from the Property and a corresponding inflation in the estimated value of the Property; and that, if the Property was purchased upon an overestimate of its value and its potential rental income, the loss would be sustained by the successful purchaser.
26. The findings of the trial judge were summarised as follows (at para. 72):
“It follows that loss and damage to [Mr. Walsh] in this case was reasonably foreseeable by [JLL]. Having found, as I have that (a) the relationship between [Mr. Walsh] and [JLL] was sufficiently proximate to give rise to a ‘special relationship’ of the kind identified in Wildgust . . . and (b) that the loss allegedly sustained by [Mr. Walsh] was reasonably foreseeable in the circumstances and (c) that the imposition upon [JLL] of such a duty is, in the circumstances not unfair, unjust or unreasonable, it follows that I am satisfied on the facts of this case that [JLL] owed a duty of care to [Mr. Walsh] to ensure that the calculation of the floor area of the property in (sic) which [JLL] published in its sales brochure was accurate.”
The trial judge then stated that, since it had been conclusively established by way of unchallenged evidence that the area of the first floor of the Property was overstated by more 1,800 square feet, it followed that JLL was in breach of its duty to Mr. Walsh.
27. The issue whether there was contributory negligence on the part of Mr. Walsh in failing to measure the Property was then considered. Once again the trial judge referred to the evidence adduced on behalf of Mr. Walsh that it is not, and has not in the past been, the practice of prospective purchasers of commercial property in Dublin to measure the floor areas of property before offering to purchase and on that basis he did not find that Mr. Walsh was guilty of negligence in failing to carry out a survey prior to his entry into the contract. Further, (at para. 79), on a point with which JLL has specifically taken issue with on the appeal, he stated that “no evidence has been adduced in these proceedings to support the contention that an inspection or survey should have been carried out in order to confirm the precise measurements within the brochure”. On that basis he was not satisfied that any contributory negligence on the part of Mr. Walsh had been established by way of evidence in the proceedings.
28. Finally, the trial judge quantified the damages for which he found JLL liable to Mr. Walsh at €350,000.
29. The order of the Court dated 7th February, 2007 and perfected on 12th February, 2007 reflected the judgment, in that it stated that the Court found that JLL was negligent and that there was no contributory negligence on the part of Mr. Walsh, and that the Court assessed damages in the sum of €350,000.00 and ordered that Mr. Walsh recover that sum from JLL. An order for costs was also made against JLL in favour of Mr. Walsh.
The appeal
30. In broad outline, JLL’s appeal is grounded on assertions that, in making the various determinations outlined in his judgment, which led to the findings that JLL was in breach of its duty of care to Mr. Walsh, but that Mr. Walsh was not guilty of negligence or was not guilty of any contributory negligence, and, on that basis, in awarding damages to Mr. Walsh, the trial judge had erred both in fact and in law. JLL has not raised any ground of appeal in relation to the quantification of the damages awarded by the trial judge to Mr. Walsh, so that this Court is concerned only with the issue of liability. However, on the issue of liability both parties have attached considerable importance to the factual basis of the decision of the trial judge.
31. In their written submissions, counsel for Mr. Walsh place considerable emphasis on the factual matrix. First, they outline certain relevant undisputed facts, one of which is at the heart of the controversy between the parties, namely, that the floor area of the first floor of the Property is incorrectly stated in the particulars in the brochure. Secondly, there are listed no less than a further eighteen findings of fact made by the trial judge in his judgment. Thirdly, issue is taken in relation to what are characterised as erroneous factual assertions made by counsel for JLL in their submissions and no less than thirteen such assertions are itemised. Predictably, counsel for Mr. Walsh emphasise the function of this Court in relation to findings of fact made at first instance, referring to the principles set out in the judgment of McCarthy J. in Hay v. O’Grady [1992] 1 I.R. 210, and, understandably, underlining the second principle to the following effect (at p. 217):-
“If the findings of fact made by the trial judge are supported by credible evidence, this Court is bound by those findings, however voluminous and, apparently, weighty the testimony against them. The truth is not the monopoly of any majority.”
Obviously, this Court’s limited function in relation to findings of fact is a factor of which one is acutely conscious.
32. On the other hand, counsel for JLL have raised issues in their submissions in relation to quite a number of factual matters, including findings of fact made by the trial judge, the correctness of which they challenge, on the basis that some inferences leading to conclusions on matters of fact are incorrect and some of the evidence before the High Court was not sufficiently considered by the trial judge. A few examples will suffice for present purposes. First, the final ground of appeal put forward in the notice of appeal is that the trial judge erred in fact and in law in making the finding (at para. 79) referred to earlier that “no evidence has been adduced in these proceedings to support the contention that such an inspection or survey should have been carried out in order to confirm the precise measurements contained within the brochure”, notwithstanding the earlier statement (at para. 33) to the effect that Mr. Rowan “stated in evidence . . . that a prudent investor or intending purchaser should carry out a detailed inspection and measure all floor areas before purchasing a property”, and that “it would be normal or prudent and would not be considered acceptable practice to rely solely on the measurements set out in the sales brochures prepared by a vendor’s agent”, thereby pointing to the inconsistency between the two statements. Secondly, not only do counsel for JLL raise questions about the findings of fact made by the trial judge, but they also contradict assertions made by counsel for Mr. Walsh in their submissions in relation to the findings. For instance, an assertion by counsel for Mr. Walsh that there was a finding of fact that the Property would have been difficult for prospective purchasers to have measured is contradicted by counsel for JLL, who suggest that there was no such finding, and, in any event, there was contradictory evidence on the point. Finally, by way of example, counsel for JLL submit that the trial judge erred in fact and in law in holding that the disclaimer or similar disclaimers “have in the past been regarded by potential purchasers as relating to relatively minor measurement errors”.
33. Having mentioned some of the factual controversies which have arisen between the parties on the appeal, I now propose considering the relevant legal principles as they have evolved up to the present time with, inter alia, the objective of assessing to what extent those controversies as to the findings of the trial judge are relevant to the determination of the core issue which falls to be determined on the appeal. That issue, in my view, is the effect, if any, of the disclaimer in the sales brochure on JLL’s liability to Mr. Walsh for the errors in the brochure. If they are not relevant, the factual controversies do not have to be considered further.
Analysis of evolution of relevant legal principles and current law on negligent misstatement
34. The structure of the analysis which follows is to use Hedley Byrne as the starting point and thereafter to address in chronological order the various authorities relied on by the parties, ending with Wildgust.
Hedley Byrne
35. As was pointed out by Keane C.J. in Glencar (at p. 134), a major qualification of the principle that no action for negligence lay in respect of purely economic loss was established in Hedley Byrne in the case of pecuniary loss caused by a negligent misstatement. However, for present purposes, the significance of the decision in Hedley Byrne is the manner in which Law Lords addressed an issue that arose in relation to a disclaimer of responsibility. There, the respondent, Heller & Partners Ltd, a merchant bank, received an inquiry by telephone from another bank, which wanted to know in confidence and without responsibility on the part of the respondent the respectability and standing of one of its customers. Some months later the bank wrote to the respondent asking for its opinion in confidence as to the respectability and standing of the customer and whether it considered the customer trustworthy in the way of business to the extent of £100,000.00 per annum. The response of the respondent was headed “CONFIDENTIAL” and was expressed to be “For your private use and without responsibility on the part of the bank or its officials”. The recipient bank communicated the replies to its customer, the appellant, which relied on the statements in the response and as a result lost over £17,000.00 when the customer of the respondent went into liquidation. The appellant’s action for damages for negligent misstatement failed.
36. The five Law Lords took a similar view on the question of liability. Lord Reid, in a passage (at p. 492) relied on by counsel for JLL in this case, identified the question as “whether an undertaking to assume a duty to take care can be inferred”. He found that it was clear that the respondent never undertook any duty to exercise care in giving the replies and the appellant could not succeed unless there was such a duty. Lord Devlin found that there was a “general disclaimer of responsibility” which appeared to him to be conclusive. He agreed with Lord Reid and he stated (at p.533):-
“A man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not. The problem of reconciling words of exemption with the existence of a duty arises only when a party is claiming exemption from a responsibility which he has already undertaken or which he is contracting to undertake.”
37. As is frequently observed and, indeed, as was observed by Geoghegan J. in Wildgust (at para. 10), there were nuanced differences of emphasis in the speeches of the Law Lords in Hedley Byrne but overall the concept of “special relationship” was accepted even though different characterisations were given. Counsel for Mr. Walsh placed particular emphasis on a passage from the speech of Lord Pearce (at p.540). As I believe that reliance on behalf of Mr. Walsh on the passage and, in particular, the portion emphasised, is misconceived, I consider it appropriate to put it into context. Lord Pearce stated (at p. 539) that innocent misrepresentation per se gives no right to damages, but he identified three situations in which it would:
(a) if the misrepresentation was intended by the parties to form a warranty between contracting parties, that is to say, a contractual situation, it gives on that ground a right to damages;
(b) if an innocent misrepresentation is made between the parties in a fiduciary relationship, it may, on that ground, give a right to claim damages for negligence; and
(c) there is also a duty of care created by “special relationships” which, though not fiduciary, give rise to an assumption that care as well as honesty is demanded.
38. The passage relied on by counsel for Mr. Walsh forms part of an analysis by Lord Pearce of what he described (at p. 539) as a “most important circumstance” – “the form of the inquiry and of the answer”. He pointed out that in Hedley Byrne both were plainly stated to be without liability. In addressing an argument made on behalf of the appellant that the words used were not sufficiently precise to exclude liability for negligence, and having stated that he did not accept that, even if the parties were already in contractual or other special relationship, the words would give no immunity to a negligent answer, in the passage relied on by counsel for Mr. Walsh he stated:
“But in any event they clearly prevent a special relationship from arising. They are part of the material from which one deduces whether a duty of care and a liability for negligence was assumed. If both parties say expressly (in a case where neither is deliberately taking advantage of the other) that there shall be no liability, I do not find it possible to say that a liability was assumed.”
39. Emphasis is placed by counsel for Mr. Walsh on the words “[t]hey are part of the material from which one deduces whether a duty of care and a liability for negligence was assumed” in that passage. That, it is suggested, means that the English courts have treated the presence of a disclaimer in negligent misstatement cases as one of the factors to be taken into account in determining whether the maker of the statement has “assumed responsibility” to the recipient, but not as an automatic bar to recovery by the recipient. The principal reason advanced on behalf of Mr. Walsh for the proposition that the disclaimer in the brochure in this case was ineffective to bar recovery by Mr. Walsh was the finding by the trial judge in his judgment (at para. 54), which is referred to earlier (at para. 22), that the disclaimer was of a type which is regarded by potential purchasers as relating “to relatively minor measurement errors”. Obviously, a disclaimer in most cases will only be part of the material from which one deduces whether what is now considered to be assumption of responsibility for the task exists. If it does not, the requirement of “proximity” or “a special relationship” will not be met. The misconception on the part of counsel for Mr. Walsh is in failing to recognise that the significance of a disclaimer and its proper interpretation, as the law has evolved, is in determining whether the giver of the information has assumed responsibility for the task for the benefit of the recipient claimant, as will be explained later.
Smith
40. Chronologically, the next authority of the Courts of the United Kingdom referred to in the judgment of the trial judge is the decision of the House of Lords in Smith. There the Law Lords were dealing with two appeals, but I consider it sufficient to address the appeal in Smith. The facts were that Mrs. Smith applied to a building society for a mortgage to enable her to buy a house. The building society was under a statutory duty to obtain a written valuation report on the house. It instructed the appellants, Eric S. Bush, a firm of surveyors, to inspect the house and carry out a valuation. Mrs. Smith paid the building society an inspection fee. She signed an application form which stated that the building society would provide her with a copy of the report and mortgage valuation obtained by it. The form contained a disclaimer, the text of which counsel for Mr. Walsh put before this Court. The text is to be found in the report (at p. 842), and it was in the following terms:-
“I accept that the society will provide me with a copy of the report and mortgage valuation which the society will obtain in relation to this application. I understand that the society is not the agent of the surveyor or firm of surveyors and that I am making no agreement with the surveyor or firm of surveyors. I understand that neither the society nor the surveyor or firm of surveyors will warrant, represent or give any assurance to me that the statements, conclusions and opinions expressed or implied in the report and mortgage valuation will be accurate or valid and that the surveyor’s report will be supplied without any acceptance of responsibility on their part to me.”
The appellants valued the house at £16,500.00 and the report recorded that no essential repairs were required. Relying on the report and without having obtained an independent survey, Mrs. Smith purchased the house for £18,000.00, having accepted an advance of £3,500.00 from the building society. Eighteen months after Mrs. Smith had purchased the house, bricks from the chimney collapsed and fell through the roof causing considerable damage. She brought an action against the appellants for damages for negligence. She was successful at first instance and was awarded damages. The Court of Appeal affirmed that decision and the House of Lords affirmed the decision of the Court of Appeal. A complicating factor in that case was that the disclaimer made by or on behalf of the surveyor appellants was subject to the statutory provisions of the Unfair Contract Terms Act 1977 (“the Act of 1977”) in force in the United Kingdom, and had to satisfy the requirement of reasonableness stipulated in s. 2(2) of the Act of 1977. It was held that the requirement was not satisfied, so that the disclaimer was not effective to exclude liability for negligence.
41. In the overall context of the evolution of the law in the United Kingdom on negligent misstatement, and, in particular, the concept of assumption of responsibility, the following passage from the speech of Lord Griffiths in Smith, which addresses the issues which arose on that appeal other than the issue of the requirements of the Act of 1977, is quoted with a view to providing some enlightenment as to later comments on it. He stated (at p. 864):-
“I have already given my view that the voluntary assumption of responsibility is unlikely to be a helpful or realistic test in most cases. I therefore return to the question in what circumstances should the law deem those who give advice to have assumed responsibility to the person who acts on the advice or, in other words, in what circumstances should a duty of care be owed by the advisor to those who act on his advice? I would answer[:] only if it is foreseeable that if the advice is negligent the recipient is likely to suffer damage, that there is a sufficiently proximate relationship between the parties and that it is just and reasonable to impose the liability. In the case of a surveyor valuing a small house for a building society or a local authority, the application of these three criteria leads to the conclusion that he owes a duty of care to the purchaser. If the valuation is negligent and is relied on, damage in the form of economic loss to the purchaser is obviously foreseeable. The necessary proximity arises from the surveyor’s knowledge that the overwhelming probability is that the purchaser will rely on his valuation, the evidence was that surveyors knew that approximately 90 per cent of purchasers did so, and the fact that the surveyor only obtains the work because the purchaser is willing to pay his fee. It is just and reasonable that the duty should be imposed for the advice is given in a professional as opposed to a social context and liability for breach of duty will be limited both as to its extent and amount. The extent of the liability is limited to the purchaser of the house. The amount of liability cannot be great because it relates to a modest house.”
That passage was preceded by an analysis by Lord Griffiths of a decision of the Queens Bench Division of the English High Court in Yianni v. Edwin Evans & Sons (A Firm) [1982] Q.B. 438 (“Yianni”). Lord Griffiths stated that he had come to the conclusion that the Yianni case had been correctly decided.
Yianni
42. Although not mentioned in the judgment of the High Court, or in the written submissions filed on behalf of Mr. Walsh, counsel for Mr. Walsh attached some importance to the Yianni decision in the oral submissions in this Court. It was also a case in which the plaintiffs decided to buy a house and to obtain a loan from a building society. The building society instructed the defendants, a well established firm of valuers and surveyors who regularly carried out valuations for the building society, to inspect the house and value it. The instructions from the building society named the plaintiffs as the purchasers, set out the purchase price and the loan required. The defendants reported that the house was adequate security for the loan. The building society accepted the report and notified the plaintiffs that they were willing to lend and they also sent them a copy of the society’s explanatory booklet. However, as is recorded in the judgment (at p. 447), Mr. Yianni did not read it, but if he had done so he would have read on p. 2 the following paragraph under the heading “Valuation”:-
“The Society does not accept responsibility for the construction or condition of the property offered as security, nor does it warrant that the purchase price is reasonable. The valuer’s report is confidential to the Society and is exclusively for the use of the Directors and Officers in determining whether a loan should be made and if so, for what amount. The Society may bring to your notice any defects which the valuer mentions but it should not be assumed that no other defects exist. If you require a survey for your own information and protection, you should instruct a surveyor independently. You are recommended to do this.”
43. On those facts it was held by the Queens Bench Division (Park J.) that the defendants were liable in negligence to the plaintiffs. It was further held that the plaintiffs had not been guilty of contributory negligence. Counsel for Mr. Walsh cited the penultimate paragraph in the judgment (at p. 457) on the issue of contributory negligence, which was in the following terms:-
“Finally [counsel] says that the plaintiffs should be held guilty of contributory negligence because they failed to have an independent survey: made no inquiries with the objective discovering what had been done to the house before they decided to buy it: failed to read the literature provided by the building society and generally took no steps to discover the true condition of the house. It is true that the plaintiffs failed in all of these respects, but that failure was due to the fact that they relied on the defendants to make a competent valuation of the house. I have been given no reason why they were unwise to do so. I have earlier read the paragraph under the heading ‘Valuation’ in the building society’s handbook, which Mr. Yianni did not read. No doubt if the paragraph had been in stronger terms, and had included a warning that it would be dangerous to rely on the valuer’s report, then I think that the plaintiffs might well have been held to be negligent. But, in my judgment, on the evidence the allegation of contributory negligence fails.”
While, as counsel for JLL submitted, the issue of contributory negligence does not arise unless liability for negligent misstatement is found on the part of JLL, I have quoted that passage because the reference to the inclusion of a warning in a disclaimer is resonant of the observations of the trial judge in his judgment (at para. 63) as quoted earlier (at para. 23). A suggestion of the necessity for a warning, I believe, is not to be found in any of the other authorities of the courts of the United Kingdom to which this Court’s attention has been drawn.
44. By way of general observation, I find it difficult to see any real analogy between the Yianni case, or, indeed, the Smith case, on the one hand, and this case, on the other hand. In the former cases each valuation was carried out in the context of a statutory framework which imposed a duty on the building society to make arrangements for the valuation of a property offered as security for an advance, which statutory framework, in the words of Lord Griffiths in Smith, “bites on such disclaimer”. Further, it was the prospective borrower who paid the valuation fee. Apart from that, the views of Lord Griffiths on the concept of assumption of responsibility have not found favour in the jurisprudence of the United Kingdom courts.
Glencar
45. The decision of the House of Lords in Smith pre-dates its decision in Caparo. Before considering the nature of the claim in Caparo and its factual context and, in particular, the specific passage in the speech of Lord Bridge in Caparo relied on by counsel for JLL in this case, it is appropriate to take a broader view of that decision by reference to the observations of this Court in relation to it in Glencar. In his judgment, Keane C.J., having noted that ultimately in Caparo a different approach had been adopted by the House of Lords as to determination whether a duty of care is owed and, if so, what is its scope, quoted the following passage from the speech of Lord Bridge (at p. 617), in which he summed up the approach in England:-
“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 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 one party for the benefit of the other.”
Later in addressing the law in this jurisdiction, Keane C.J. stated (at p. 139):-
“There is, in my view, no reason why courts determining whether a duty of care arises should consider themselves obliged to hold that it does in every case where injury or damage to property was reasonably foreseeable and the notoriously difficult and elusive test of ‘proximity’ or ‘neighbourhood’ can be said to have been met, unless very powerful public policy considerations dictate otherwise. It seems to me that no injustice will be done if they are required to take a further step of considering whether, in all the circumstances, it is just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the plaintiff…”
46. It must be borne in mind that of the allegations on which the claim against the defendant in Glencar, Mayo County Council, was based, the allegation of relevance for present purposes was of negligent action in the exercise of its statutory function as planning authority, not an allegation of negligence misstatement. Further, while it must also be borne in mind that the view of Keane C.J. was obiter, within three years, it had been endorsed by this Court in the judgment of Fennelly J. in Breslin v. Corcoran [2003] 2 IR 203, a case also involving a negligent act as distinct from a negligent misstatement. Fennelly J. stated (at p. 208):
“I consider that this passage represents the most authoritative statement of the general approach to be adopted by our courts when ruling on the existence of a duty of care. It seems to me that, in addition to the elements of foreseeability and proximity, it is natural to have regard to considerations of fairness, justice and reasonableness. Almost anything may be foreseeable. What is reasonably foreseeable is closely linked to the concept of proximity as explained in the cases. The judge of fact will naturally also consider whether it is fair and just to impose liability. Put otherwise, it is necessary to have regard to all the relevant circumstances.”
Caparo
47. The decision of the House of Lords in Caparo arose from the trial of a preliminary issue as to whether a firm of accountants, who were the auditors of the accounts of a public limited company for a specific year and were defendants in an action alleging that the auditors had been negligent in auditing the accounts, owed a duty of care to the respondents, who were shareholders in the company and who, after receipt of the audited accounts for the year in question, purchased more shares in the company and later in the year made a successful takeover bid for the company. The passage in the speech of Lord Bridge relied on by counsel for JLL in this case follows an analysis of a number of cases including Hedley Byrne and Smith. Lord Bridge stated (at p.620):-
“The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it.”
On this appeal counsel for JLL drew attention to the qualifications in that quotation by reference to “the effect of any disclaimer of responsibility”, and argued that the existence and effect of the relevant disclaimer is crucial in any given case. Counsel for Mr. Walsh emphasised that what is of importance is the “effect” of any disclaimer, rather than its mere existence.
48. In Caparo, Lord Bridge noted (at p. 623) that some of the speeches in the Hedley Byrne case derive a duty of care in relation to negligent statements “from a voluntary assumption of responsibility on the part of the maker of the statements”, whereas in Smith Lord Griffiths emphatically rejected the view that such was the true ground of liability. Lord Bridge, however, considered that, in the context of the appeal then before the House of Lords, nothing turned on the difference between the two approaches. The outcome of the appeal in Caparo was that the House of Lords found that the auditors did not owe a duty of care to the respondents, either as shareholders or as potential investors in the company.
49. Before leaving the Caparo decision, it is appropriate to record that, on the facts there, no issue arose as to the existence or effect of any disclaimer of responsibility. While the passage quoted above from the speech of Lord Bridge does acknowledge that the effect of a disclaimer of responsibility may be of significance, it is obvious from the next sentence that what Lord Bridge was endeavouring to do was to distinguish the situations in the decided cases which he had outlined in that passage from the entirely different situation where, in his words, “a statement is put into more or less general circulation and may foreseeably be relied on by strangers to the maker of the statement for any of a variety of different purposes which the maker of the statement has no specific reason to anticipate.” To obviate the unsatisfactory outcome which would result from holding such a maker of a statement to be under a duty of care in respect of the accuracy of the statement “to all and sundry”, Lord Bridge outlined what he would expect to find in the decided cases as follows (at p. 621):
“Hence, looking only at the circumstances of these decided cases where a duty of care in respect of negligent statements has been held to exist, I should expect to find that the ‘limit or control mechanism’ . . . rested in the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the ‘proximity’ between the plaintiff and the defendant, that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (e.g. in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind.”
In the light of what Lord Bridge said earlier, an effective disclaimer of responsibility prevents the “proximity” ingredient of the existence of a duty of care being established.
McCullagh
50. McCullagh was decided by the Court of Appeal, after the decision of the House of Lords in Caparo. Of all of the authorities cited on behalf of the parties, it is the authority which factually bears most resemblance to this case. The facts were that the plaintiff went to view a property in Chiswick in London, having seen a magazine advertisement which described the property as having “gardens of nearly 1 acre”. At the viewing, a director of the defendant estate agents involved in the sale of the property, Mr. Scott, orally represented to the plaintiff that the site occupied 0.92 of an acre. At the end of the viewing he handed the plaintiff a copy of the defendant’s particulars of the property, which stated the area as 0.92 acres. In fact, the site area was 0.48 acres. The plaintiff made an offer for the property that evening, and having revisited the property the next day, increased his offer, which was accepted by the vendors, and contracts were exchanged on the following Monday. When the plaintiff discovered that the plot site was only 0.48 acres, he initiated proceedings against the estate agents for damages for negligence. The estate agents, in their defence, relied on the disclaimer in their particulars document. It is appropriate to record the terms of the disclaimer, as set out in the judgment of Hobhouse L.J. (at p.209), because the terms of the disclaimer were expressly brought to the attention of this Court by counsel for Mr. Walsh. Having referred to the particulars, Hobhouse L.J. stated:
“They included in five paragraphs at the end of Lane Fox’s standard disclaimer:
‘1. These particulars do not constitute, nor constitute any part of, an offer or contract.
2. All statements contained in these particulars, as to this property, are made without responsibility on the part of Lane Fox or the vendors or leasers.
3. None of the statements contained in these particulars, as to this property, are to be relied on as statements, or representations of fact.
4. Any intending purchasers must satisfy themselves by inspection, or otherwise, as to the correctness of each of the statements contained in these particulars.
5. The vendors do not make or give, and neither Lane Fox nor any person in their employment, has any authority to make or give any representation or warranty whatsoever in relation to this property.’
This disclaimer was in terms which conformed closely to those commonly used by other estate agents at the time.”
51. It is clear from the judgments of the Court of Appeal in McCullagh, that the factual context, not merely the oral representation made by Mr. Scott, and the manner in which the plaintiff’s case was pleaded and argued, gave rise to complications, which were addressed in the judgments. However, for present purposes, it is only necessary to focus on the findings of the Court of Appeal in relation to the disclaimer.
52. Counsel for JLL relied on a passage from the judgment of Hobhouse L.J., which was preceded by an analysis of the speeches of the Law Lords in Hedley Byrne, and was immediately preceded by the quotation of the passage from the speech of Lord Devlin, quoted earlier (at para. 36), Hobhouse L.J. stated (at p.222):
“Thus the relevance of the disclaimer is to negative one of the essential elements for the existence of the duty of care. It negatives the assumption of responsibility for the statement. It implicitly tells the recipient of the representation that if he chooses to rely upon it he must realise that the maker is not accepting responsibility for the accuracy of the representation. The disclaimer is part of the factual situation which the court has to take into account in deciding whether or not the defendants owed a duty of care to the plaintiff. Put another way, the question is whether the plaintiff was entitled to treat the representation as one for which the defendants were accepting responsibility. This is primarily a factual question.”
Hobhouse L.J., having recognised that there had been some criticism in the speech of Lord Griffiths in Smith and in the speech of Lord Roskill in Caparo of the concept of assumption of responsibility, went on to state that the importance of that concept in cases of negligent misrepresentation was again recognised and emphasised in a subsequent decision of the House of Lords: Henderson v. Merrett Syndicates [1995] 2 AC 145 (“Henderson”). Moreover, in White v. Jones [1995] 2 AC 207 (“White”) Lord Browne-Wilkinson in the House of Lords “also emphasised the importance of the concept, assumption of responsibility”.
53. Later in his judgment, in applying the legal principles to the facts of the case, Hobhouse L.J., in a passage relied on by counsel for JLL, and in part relied on by counsel for Mr. Walsh, stated (at p.237):
“The right approach, as is made clear in Hedley Byrne, is to treat the existence of the disclaimer as one of the facts relevant to answering the question whether there had been an assumption of responsibility by the defendants for the relevant statement. This question must be answered objectively by reference to what a reasonable person in the position of Mr. McCullagh would have understood at the time that he finally relied upon the representation. In this context, it is obvious that the statement that the acreage of the property is 0.92 was a statement that was taken from the particulars, and that the defendants were not assuming responsibility for that statement. The mere fact that Mr. Scott, when showing Mr. McCullagh round the property, gave the same information to Mr. McCullagh, would not lead a reasonable person to conclude that the defendants were thereby choosing to assume responsibility for the statement which they said, in the particulars, they were not assuming responsibility for. The submission that such a conclusion would be reasonable is unreal. It was not supported by any evidence. Mr. McCullagh said (surprisingly) that he had not bothered to read the particulars, but he also said that he knew that they would contain disclaimers of the type which they, in fact, did. The submission was further inconsistent with paragraph 5 of the disclaimer. The essence of the law of negligence is the application of objective standards of reasonableness. By those standards, it is clear that the defendants were not assuming responsibility for the accuracy of the statement about the acreage. The position might be different if the representation had been about something not, or not expected to be, included in the particulars.”
In the written submissions filed on behalf of Mr. Walsh particular emphasis was attached to the first two sentences in that passage from the judgment of Hobhouse L.J., following on from reliance on the passage from the speech of Lord Pearce in Hedley Byrne quoted earlier (at para. 38). However, on the hearing of the appeal, counsel for Mr. Walsh expressly disavowed the proposition embodied in the second sentence, namely, that the effect of the disclaimer must be determined objectively.
54. Sir Christopher Slade agreed with that conclusion of Hobhouse L.J. Citing Henderson he stated (at p.243):
“The assumption of responsibility had been negatived by an appropriate disclaimer.”
Nourse L.J. was of the view that the disclaimer put the matter that there had been no breach of duty by the defendant estate agents, Lane Fox, beyond doubt.
Wildgust
55. The dispute which was the subject of the appeal before this Court in Wildgust was fundamentally different from the dispute on this appeal, and, in particular, no question arose as to the relevance of a disclaimer of responsibility in determining whether there was liability for negligent misstatement. However, the judgments of this Court are of relevance, because, at a general level, they addressed the law on negligent misstatement in the aftermath of Caparo and Glencar. Moreover, because the position of counsel for Mr. Walsh appears to be that the judgment of Geoghegan J. provides the answer to the core issue on this appeal, although I consider that it does not, it is necessary to consider that judgment in detail.
56. The facts in Wildgust were that the first named plaintiff, Harold Wildgust (“Mr. Wildgust”), and his wife entered into personal guarantees with a lender, Hill Samuel Bank Limited (“Hill Samuel”) in relation to the liability of the second named plaintiff, Carrickowen Limited, a company controlled by Mr. Wildgust, for loans it had obtained from Hill Samuel. Further, Mr. Wildgust and his wife gave security to Hill Samuel in the form of the assignment to Hill Samuel of a policy of assurance on the life of each with Norwich Union Life Assurance Society (“Norwich Union”). A monthly premium payable on the policies was paid by way of direct debit from an account in the name of Mrs. Wildgust held with Bank of Ireland. The premium payment due in March 1992 was not paid by direct debit. Although Bank of Ireland was originally a defendant in the proceedings, the plaintiffs’ claim against Bank of Ireland was settled. In essence, the dispute which was the subject of the appeal to this Court was the dispute between Mr. Wildgust and Norwich Union, which had refused to pay out on the policy on the life of Mrs. Wildgust after her death. The claim against Norwich Union was for an order compelling Norwich Union to pay out on the policy on Mrs. Wildgust’s life or for damages for negligent misstatement.
57. The negligent misstatement at the heart of the claim against Norwich Union arose in circumstances in which, Hill Samuel having been notified by Norwich Union on 6th April, 1992 of default in payment on foot of the direct debit of the monthly premium then due, an officer of Hill Samuel, Declan O’Hanlon (“Mr. O’Hanlon”), contacted Mr. Wildgust and was informed by him that a cheque had been sent to Norwich Union which would cover the premium due. Mr. O’Hanlon subsequently contacted Norwich Union by telephone on 22nd April, 1992 seeking confirmation that the policy was correct and in order. It was confirmed by Norwich Union that the cheque had been received and that everything was correct and in order.
58. However, subsequently it became apparent that everything was not correct and in order from the perspective of Norwich Union because of the manner in which Norwich Union treated the payment by cheque. As a result, the policy on the life of Mrs. Wildgust was treated as having lapsed in May 1992.
59. As recorded by Geoghegan J. in his judgment (at para. 7), Mr. O’Hanlon had not informed Mr. Wildgust that he had sought confirmation from Norwich Union that the premiums were paid up, so that Mr. Wildgust could not be said to have personally relied on the information given to Mr. O’Hanlon by Norwich Union. As is also recorded, Mr. Wildgust’s claim against Norwich Union failed in the High Court on the single ground of non-reliance. Geoghegan J. quoted what he described as the “quite crucial” final paragraph of the judgment of the High Court (Morris P.) delivered on 15th October, 2001. In that passage, which illustrates the “non-reliance” ground on which Mr. Wildgust failed at first instance, Morris P. stated:
“In my view the one major insurmountable difficulty for the plaintiff is that at no stage did he become aware of the fact that the misstatement had been made by the Norwich Union nor did he place any reliance upon it. He was not misled by the misstatement because he was not aware of it. He was not prejudiced by it. It was not until two months later that he became aware of the fact that the premium had not been paid. In my view the misstatement in no way influenced or contributed towards the conduct of the plaintiff. It did not influence him or cause him to act to his detriment. I do not believe that it would be reasonable that the law should impose a duty on the defendant for the benefit of the plaintiff in these circumstances.”
60. In his judgment (at para. 8 et seq.) Geoghegan J. analysed the development of the law of negligence, in particular having regard to the dichotomy of “negligence in act” and “negligence in a statement” and the necessity of some kind of control mechanism to limit the scope of liability for negligent misstatement in relation to the range of prospective claimants. He recognised (at para. 8) that Caparo had –
“. . . introduced a third element into liability for negligence, in addition to reasonable foreseeability and proximity, and that is reasonableness in the imposition of a duty of care.”
He also recognised that that principle had been endorsed, albeit obiter, by Keane C.J. in Glencar.
61. Geoghegan J. also referred to other English authorities on the tort of negligent misstatement, including Hedley Byrne, stating (at para. 10) that overall the concept of “special relationship” was accepted in the speeches of the Law Lords in Hedley Byrne, although recognising the nuanced differences referred to earlier. However, as he put it, before travelling further into the case law, he made the following observation on his consideration of the facts of the case before him, stating (at para. 11):
“The person in the Norwich Union giving the information had reason to believe that the first plaintiff may have been under the impression that his account was in order and he would also be aware or ought to have been aware that Hill Samuel would have paid the premium if a negative answer had been given. It should have been clear, therefore, that an incorrect answer would potentially damage the plaintiffs. That was enough to create the ‘special relationship’, if such is needed but quite apart from that, given that the assignment of the policy to Hill Samuel was by way of mortgage, the first plaintiff had an equity of redemption in the policy. Even though Hill Samuel was making the request in its own business interest, nevertheless in providing the information the second defendant would reasonably be expected to treat Hill Samuel and their customer, the mortgagor, as identified with each other. Even if one might quibble with the word ‘identified’, there was sufficient linkage to create a special relationship but as I have already indicated, I think that such relationship existed at any rate. I do not think that Hill Samuel or Mr. O’Hanlon can be said to have been an agent of the first plaintiff in making the inquiry or in relying on the answer but proof of such agency is not necessary to establish liability.”
What that passage illustrates is that Geoghegan J. was pointing to the concept of a “special relationship” as a controlling mechanism.
62. In his judgment (at para. 13) Geoghegan J. stated that the case which he found of greatest assistance was White, and, in particular, the speech of Lord Browne-Wilkinson, in which, as recorded earlier (at para. 52) in the context of the discussion of the judgment of Hobhouse L.J. in McCullagh, it was noted that the importance of the concept of assumption of responsibility was emphasised. In fact, Geoghegan J. quoted a passage from the speech of Lord Browne-Wilkinson in White, which was quoted by Hobhouse L.J. in his judgment in McCullagh, in support of the emphasis on the importance of the concept of assumption of responsibility. While that concept on its own was not crucial to Geoghegan J. finding for the plaintiff appellants in Wildgust, in my view, the submission made on behalf of Mr. Walsh that the concept was doubted by this Court in Wildgust is simply not correct. I will return to the analysis by Geoghegan J. of the judgment of Lord Browne-Wilkinson in White later. It is perhaps worth noting that the claim in White was a claim against a solicitor who had acted for a testator for failure to comply with instructions from his client to make provision for the plaintiffs, who would have been beneficiaries under the testator’s last will had such failure not occurred. In other words, it was a case of negligent action, or, more correctly, negligent inaction, not of negligent misstatement, although Geoghegan J. saw its importance as the further analysis of the Law Lords of the principles underlying Hedley Byrne.
63. Following his analysis of the aspects of the speech of Lord Browne-Wilkinson in White, which will be considered later, Geoghegan J. stated (at para. 14):
“The essence of this case was that the person in the [Norwich Union] giving the information in response to the request ought to have known that it would be relied on at least by Hill Samuel and that if the statement was incorrect, the policy could lapse to the detriment not just of Hill Samuel but to their customer who was paying the premiums and who had a beneficial interest in the form of the equity of redemption in the policy. I fail to see how that did not amount to a special relationship. Put shortly, the first plaintiff was a ‘neighbour’ for the purposes of the law of negligence and a specially close one at that. There is no question here of the [Norwich Union] being liable to large numbers of perhaps unknown persons. In my view, the [Norwich Union] is liable to the plaintiffs and I would, therefore, allow the appeal.”
In applying that reasoning to the facts, the “non-reliance” problem was obviated. Indeed, Geoghegan J. pointed to this solution to the problem earlier in a passage (at para. 9), which is quoted in the written submissions filed on behalf of Mr. Walsh, in which Geoghegan J. stated:
“In Hedley Byrne the only relationship alleged was the relationship between the inquirer and the person giving the information. Hence, the emphasis on reliance by the inquirer. It is, however, a small extension of this, and justified by later caselaw, that where a person who is not the inquirer is damaged as a consequence of the wrong answer and where the existence of such a person and the reasonable foreseeability of such damage ought to have been present in the mind of the person giving the information, there was a special relationship with that person also which gave rise to a duty of care.”
64. There is a comprehensive analysis of the development of the law on negligence and negligent misstatement in the judgment of Kearns J. in Wildgust, which forges a path from Donoghue v. Stevenson [1932] AC 562 to Hedley Byrne, and, ultimately, to Caparo and Glencar. Kearns J. (at para. 56), considered the application of what he described as the “most authoritative recent statement of the law in relation to the general duty of care in negligence”, the passage from the judgment of Keane C.J. in Glencar, quoted earlier (at para. 45). Significantly, Kearns J. went on to pose the question (at para. 57) whether the principles in Caparo, itself a case in negligent misstatement, should apply in this jurisdiction to cases of negligent misstatement, as distinct from cases of the general duty of care in negligence, where application of those principles has already been established by Glencar. The answer to that question is to be found in his judgment (at para. 63), where he stated:
“In a nutshell, I would interpret Hedley Byrne … in the light of what was stated in Caparo … on the facts of this case.”
However, it is important to emphasise that Kearns J., in reaching that conclusion, primarily focused on one only of the tests involved in determining whether a duty of care arises in the context of negligent misstatement, that is to say, the “proximity” test, stating that the “proximity” test in respect of a negligent misstatement –
“. . . must . . . include persons in a limited and identifiable class when the maker of the statement can reasonably expect, in the context of a particular inquiry, that reliance will be placed thereon by such person or persons to act or not act in a particular manner in relation to that transaction.”
Those words reflect the words of Lord Bridge in Caparo, which had been quoted earlier by Kearns J. with emphasis (at para. 51).
65. Following on from those conclusions, Kearns J. (at para. 64) expressed the view that they did not represent “any major extension of the principles in Hedley Byrne . . . as the facts of that case may indicate”. That view differed slightly from the reasoning of Geoghegan J., who perceived “a small extension”, as justified by later case law. Significantly for present purposes, later (at para. 66) Kearns J. stated that it must be borne in mind that the plaintiffs lost in Hedley Byrne largely because there was an express disclaimer of responsibility for accuracy of the information provided by the bank, a feature entirely absent from the Wildgust case.
66. It will be recalled that the basis on which the trial judge found that JLL owed a duty of care to Mr. Walsh to ensure that the measurements of the floor area in the brochure were accurate, included the finding that the relationship between JLL and Mr. Walsh was sufficiently proximate to give rise to a “special relationship” of the kind identified in Wildgust. However, it is not clear that, in reaching that conclusion, the trial judge considered, or adequately considered, the fundamental distinction between the position of Norwich Union in Wildgust and of JLL in this case, namely, that in this case there was a disclaimer in which JLL made it clear that the particulars in the brochure were not warranted and that Mr. Walsh was aware of that disclaimer.
Discussion/conclusions as to the relevant legal principles and their application to the facts
67. Having carefully considered the legal principles identified in the authorities cited on behalf of the parties as being applicable to the determination as to whether a person in the position of JLL, an auctioneer or an estate agent who gives information in relation to the property being sold in a sales advertisement or a sales brochure, which is communicated or distributed to intending purchasers, has liability to a purchaser for loss incurred by the purchaser in consequence of reliance on such information which proves to be incorrect, I consider that the first question which must be addressed is whether a duty of care is owed by the estate agent giving the information to the recipient of it. Where the person giving the information in so doing has expressly included a disclaimer in the brochure or advertisement, in my view, the core issue in determining whether a duty of care exists is whether the existence of the disclaimer by reference to its terms has the effect that there is no assumption of responsibility for the task of furnishing correct information on the part of the estate agent giving the information to the recipient. If it has that effect, a duty of care is not owed to the recipient. In my view, what was referred to as the “right approach” by Hobhouse L.J. in McCullagh in the passage from his judgment quoted earlier (at para. 53), is also the proper approach to be adopted in this jurisdiction.
68. Accordingly, the core issue on the facts of this case is whether, in furnishing the brochure to Mr. Walsh, having regard to the existence of the disclaimer on the first page of the brochure, JLL can be found to have assumed responsibility to Mr. Walsh for the accuracy of the information, including the floor area measurements, contained in the brochure. As was pointed out by Hobhouse L.J., that question must be determined objectively. In this case it must be determined by reference to what a reasonable person in the position of Mr. Walsh interested in the Property would have understood on and after 14th July, 2000. Such a reasonable person, having knowledge of the disclaimer, and there is no question here but that Mr. Walsh did have knowledge of the disclaimer, would have taken notice of the following aspects of the disclaimer, namely:
(a) that it related to the particulars in the brochure, which, in turn, related to a range of factors which probably would have affected the value of the Property, for example, the location of the Property on the ground and by reference to the commercial and institutional surroundings, its zoning for the purposes of planning and development, and its area, both the site area externally and the floor area internally;
(b) that, while the appellant represented that every care had been taken in the preparation of those particulars and that it believed them to be correct, such representation was unequivocally qualified, in that it was explicitly stated that the particulars were not warranted, which, on a plain reading, means that the particulars were not guaranteed as being correct; and
(c) that intending purchasers or lessees were expressly told that they should satisfy themselves as to the correctness of the information given.
69. Obviously, in interpreting the disclaimer objectively, it must be read as a whole. When that is done, in my view, it is clear and unambiguous as to non-assumption by JLL of responsibility for the correctness of the particulars, in that, even though JLL is stating that it has done its best to ensure, and it believes, that the information is correct, it is made clear that it is not guaranteeing that such is the case, and Mr. Walsh is told in clear terms that he should satisfy himself as to the correctness of the information. On the facts of the case, it is clear that Mr. Walsh was in a position to satisfy himself as to the correctness or otherwise of the internal measurements set out in the brochure. He could have instructed Mr. O’Brien to measure the internal areas on the 27th July, 2000, when he was conducting the “condition survey”. Mr. O’Brien’s evidence in cross-examination was that, if he had been asked to measure the property, he would have done so, and, indeed, he did so in March 2001.
70. The references in the disclaimer to every care having been taken, and the particulars being believed to be correct, cannot be read on their own as a representation that there is no misstatement or incorrect information in the brochure. Having regard to the context in which they appear, there is no basis on which those words can be taken as a representation that everything is correct and that Mr. Walsh need not enquire or satisfy himself any further. As to the suggestion of the trial judge that, in order to relieve itself of liability to intending purchasers, there would have been an obligation on JLL to draw the attention of Mr. Walsh and other prospective purchasers to “the fact that seemingly precise measurements published were likely to be wholly unreliable and should not be relied upon in any circumstances”, if there was such a requirement, the probability is that auctioneers and estate agents would furnish no information to prospective purchasers. However, in my view, there is no such requirement. What is required is that a person in the position of JLL should clearly and unambiguously state that it is not assuming responsibility for the task of ensuring that the information furnished is correct, and that the recipient of the brochure has responsibility for such task. I am satisfied that, on the proper interpretation of the disclaimer, JLL did so in this case.
71. While it must be acknowledged that, when one compares the language of the disclaimer clause relied on by Lane Fox & Partners Limited in McCullagh with the language in JLL’s brochure, the wording in the former is more precise than the words of the disclaimer in JLL’s brochure, particularly, having regard to the reference to all statements being made “without responsibility on the part of Lane Fox”, nonetheless, I consider that, read objectively, JLL’s disclaimer does clearly convey the message that JLL is not assuming responsibility for the accuracy of the particulars in the brochure and that it is for the intended purchaser to satisfy himself of the correctness of the information. Any other interpretation would ignore the part of the message to the effect that the correctness of the particulars is not warranted. More importantly, it would wholly ignore the part of the message which tells the intending purchasers that they should satisfy themselves as to the correctness of the information given. In short, there is no ambiguity in the message conveyed in the disclaimer and no other interpretation of the words used is open.
72. While Mr. Walsh testified that he was aware of the disclaimer, his evidence was that he thought it referred to minor discrepancies. Mr. Smith also testified that he believed that it was just for small discrepancies, as did Mr. Tony Rooney who prepared the report dated 15th August, 2000 of Palmer McCormack. Mr. Rowan’s evidence was that the disclaimer covered all issues, not just minor errors and, on the basis of his experience, he rejected the proposition that the common perception in the industry was that such a disclaimer only covered minor errors. Accordingly, there was a conflict of evidence on the point before the High Court. However, the Court’s function is to interpret the disclaimer objectively, having regard to the words used. The disclaimer in JLL’s brochure, assessed objectively, is not open to the interpretation that it refers only to minor discrepancies, even assuming that what amount to minor discrepancies could be identified with certainty. On the contrary, what it states is that JLL was not guaranteeing the correctness of any of the information. Aside from that, it could be suggested that it would make no sense for an auctioneer or an estate agent furnishing particulars to a potential purchaser to disclaim responsibility for minor discrepancies, and thereby by implication to assume responsibility for major discrepancies.
73. It is instructive to consider JLL’s disclaimer in the context of the factual framework envisaged by Lord Bridge in the passage from his speech in Caparo (at p. 620), which is quoted above (at para. 47), and to consider whether, and to what extent, it would impact on the propositions set forth in the second and third sentences of that passage. The question arising from the second sentence is whether JLL could clearly be expected specifically to anticipate that Mr. Walsh would rely on the information given by JLL for the very purpose for which Mr. Walsh did, in the event, rely on it. In my view, the answer is that JLL could not, because the message conveyed in the disclaimer to the intended purchaser is that the appellant is not guaranteeing the correctness of the information, and it is up to Mr. Walsh to satisfy himself as to its correctness. The question which arises out of the third sentence is whether Mr. Walsh could reasonably suppose that he was entitled to rely on the information contained in the brochure, for the purpose for which he required it. Once again, the answer is that he could not, because JLL, in the disclaimer, has told him that he must satisfy himself as to the correctness of the information, which included the internal measurements which Mr. Walsh intended to utilise to calculate how much he should tender for the Property.
74. Returning to the emphasis placed by Lord Browne-Wilkinson on the importance of the concept of assumption of responsibility in White, the passage from his speech, quoted by Geoghegan J. in Wildgust, which was also quoted by Hobhouse L.J. in McCullagh, is, as Lord Browne-Wilkinson put it, the bringing together of various strands previously addressed, in considering earlier authorities, in particular, Hedley Byrne. In the passage quoted by Geoghegan J., which sets out the underlying principles which Geoghegan J. adopted (at para. 14), Lord Browne-Wilkinson stated (at p. 274):
“The law of England does not impose any general duty of care to avoid negligent misstatements or to avoid causing pure economic loss even if economic damage to the plaintiff was foreseeable. However, such a duty of care will arise if there is a special relationship between the parties. Although the categories of cases in which such special relationship can be held to exist are not closed, as yet only two categories have been identified, viz. (1) where there is a fiduciary relationship and (2) where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff’s affairs or by choosing to speak. If he does so assume to act or speak he is said to have assumed responsibility for carrying through the matter he has entered upon. In the words of Lord Reid in Hedley Byrne . . ., he has ‘accepted a relationship which requires him to exercise such care as the circumstances require’, i.e. although the extent of the duty will vary from category to category, some duty of care arises from the special relationship.”
(Emphasis in original).
The corollary of what is stated in that passage obviously is that, if the defendant expressly disclaims assumption of responsibility, he does not come within the second category identified, so that a special relationship does not exist between the defendant and the plaintiff and a duty of care does not arise. Indeed, Lord Browne-Wilkinson earlier in his speech (at p. 272), in the context of demonstrating that assumption of responsibility was a crucial element in the reasoning of the majority in Hedley Byrne, stated:
“. . . it is clear that the basis on which (apart from the disclaimer) the majority would have held the bank liable for negligently giving the reference was that, were it not for the disclaimer, the bank would have assumed responsibility for such reference.”
In short, it is to be inferred that it was the disclaimer which saved Heller & Partners from assuming responsibility and, ultimately, from liability and negligence.
75. Earlier in his speech, Lord Browne-Wilkinson in a passage (at p. 273), which was also quoted in part by Hobhouse L.J. in McCullagh, explained one strand, the meaning of assumption of responsibility outside a fiduciary relationship and its consequences, stating:
“Just as in the case of fiduciary duties, the assumption of responsibility referred to is the defendant’s assumption of responsibility for the task, not the assumption of legal liability. Even in cases of ad hoc relationships, it is the undertaking to answer the question posed which creates the relationship. If the responsibility for the task is assumed by the defendant he thereby creates a special relationship between himself and the plaintiff in relation to which the law (not the defendant) attaches a duty to carry out carefully the task so assumed. If this be the right view, it does much to allay the doubts about the utility of the concept of assumption of responsibility voiced by Lord Griffiths in Smith . . . and by Lord Roskill in Caparo . . .”
76. There is an interesting commentary on the concept of assumption of responsibility in Buckley: The Law of Negligence 4th Ed., (Oxford, 2005) at para. 4.17 where it is stated:
“In Henderson . . ., Lord Goff pointed out that, in Hedley Byrne, ‘all of their Lordships spoke in terms of one party having assumed or undertaking a responsibility towards the other’. Although the concept of ‘assumption of responsibility’ was criticised in the House of Lords in two cases subsequent to Hedley Byrne, its validity was emphatically reaffirmed by the House itself in Henderson . . . and White . . . . In both cases, however, the concept of assumption of responsibility was redefined as revolving around the task which the defendant undertook to carry out rather than the notion of an assumption of legal responsibility towards a specific individual. The earlier approach had been open to criticism on the grounds of artificiality, not least where liability was imposed under the Hedley Byrne principle despite the defendant’s having sought to disclaim responsibility. By focusing upon the work undertaken, rather than the person who originally commissioned it, the new approach sought not only to avoid that artificiality but also to provide a coherent basis for the imposition of liability in favour of third parties.”
The two cases referred to in that passage in which the concept was criticised in the House of Lords were in the speech of Lord Roskill in Caparo and in the speech of Lord Griffiths in Smith. That commentary is repeated in the 5th edition of Buckley published in 2011 (Buckley: The Law of Negligence and Nuisance).
77. As counsel for JLL emphasised, the disclaimer in JLL’s brochure specifically referred to the particulars in the brochure and it invited Mr. Walsh to satisfy himself as to the correctness of the “particulars”, which included the internal measurements of the Property. Adopting the words of Lord Browne-Wilkinson in the passage from White quoted earlier (in para. 75), there was no “assumption of responsibility” by JLL “for the task” of providing information in the particulars in the brochure in relation to the Property, including the internal floor area measurements, which would be accurate and correct. Accordingly, there was not created a “special relationship” between JLL and Mr. Walsh “in relation to which the law . . . attaches a duty to carry out carefully the task so assumed”. In summary, the absence of an assumption of responsibility for the task, because of the existence and effect of the disclaimer, resulted in the proximity or special relationship requirement not being met and there being no duty of care imposed by law on JLL and no liability to Mr. Walsh for the loss which Mr. Walsh claimed was a consequence of the errors in the internal measurements.
78. While it is not necessary to apply the “third element” introduced in Caparo in determining whether a duty of care was owed by JLL to Mr. Walsh and JLL’s liability on the facts here, I feel constrained to observe that it would be difficult to conclude that it would be fair, just or reasonable to impose a duty of care on JLL for the benefit of Mr. Walsh in relation to the accuracy of the particulars set out in the brochure, given the existence and effect of the express disclaimer of responsibility of which Mr. Walsh was aware, even if, on the basis of his evidence, he misunderstood that effect. He should have got advice as to its meaning.
79. The disclaimer in the brochure was not immaterial in the manner suggested by the trial judge in the passage from his judgment (at para. 51) quoted earlier or, indeed, in any respect. The point on which I fundamentally disagree with the reasoning in the judgment of the High Court, which ultimately led to what I consider to be the incorrect conclusion that JLL owed a duty of care to Mr. Walsh and was in breach of that duty, was the failure, having considered the matter objectively, to recognise that there was no assumption of responsibility on the part of JLL in relation to the task of furnishing accurate internal measurements to Mr. Walsh and that the consequence was that the law imposed no duty of care on JLL. As such recognition should have been the starting point in the process of determining whether a duty of care was owed by JLL to Mr. Walsh and whether liability for negligent misstatement lay on JLL, the controversies in relation to the findings of fact made by the trial judge raised on the appeal do not have to be resolved, even if they could, or should, be.
80. The conclusion that JLL did not owe a duty of care to Mr. Walsh in respect of the accuracy of the internal measurements of the Property as shown in the brochure furnished by JLL to Mr. Walsh spells the death knell of Mr. Walsh’s claim against JLL for damages for negligent misstatement. Accordingly, whether there was negligence or contributory negligence on the part of Mr. Walsh in failing to have the internal measurements checked, in addition to having the “condition” survey carried out, does not have to be considered.
Order
81. For the reasons outlined above, I consider that there should be an order allowing the JLL’s appeal and discharging the order of the High Court finding that JLL was negligent and awarding damages to Mr. Walsh against JLL.
MacMenamin J.
1. The appeal before the Court raises issues of some importance. The Court must assess how the law of negligent mis-statement is to be applied in the case of an auctioneers’ brochure that contained an incorrect statement in an exemption clause, to the effect that “every care” had been taken in its preparation. A further question is no less significant: that is, the application here of the established jurisprudence of this Court to the effect that findings of fact made by a trial judge are binding, unless there was no evidence to support such findings.
2. In a judgment delivered by the High Court on the 24th January, 2007. Quirke J. found the appellant firm (the defendant, or JLL) liable to pay the respondent, (the plaintiff, or Mr. Walsh), €350,000 in damages on foot of its negligence and negligent mis-statement, in the preparation of an auctioneer’s brochure. (See [2009] 4 IR 401). At the level of legal principle, the case might be perceived as therefore necessitating a broad consideration of the legal issues in an area where the law of torts and the law of contract intersect. In other instances, such a case might require consideration and analysis of the scope of liability for a negligent mis-statement; whether there existed a “special relationship” creating a duty of care between the parties; whether the facts established that Mr. Walsh was sufficiently proximate to JLL, so as to make him a person “reasonably likely to be affected” by the firm’s acts or omissions; whether personal reliance on statements made by employees of JLL would be necessary for the recovery of damages; and lastly, but importantly, whether JLL was entitled to rely upon what is said to be an exclusion or exemption clause printed at the base of one page of the brochure issued by that firm for the purposes of the sale. But this case is less complex than that.
3. The essential facts of this case are quite simple. As long ago as July in the year 2000, Mr. Walsh (who then had 20 years experience in the property market) decided to buy a two-storey north Dublin city centre commercial property. JLL sent him a brochure. This described both the measurements of the ground floor, and those of the first floor of the property. But the measurement of the first floor contained a very significant error. Contrary to what the brochure stated, it did not, in fact, measure 10,463 sq. feet, but instead, measured only 8,575.5 sq. feet. Mr. Walsh did not get what he paid for. He paid in excess of Ir.£2 million for the property. As a result of the incorrect measurement, the property was significantly less valuable. The brochure did contain what is said to be an exemption clause. The High Court judge was unimpressed with this clause. He described it as having been placed in very small type at the bottom of the first page of the document. He held that it was not binding on the purchaser, on the facts later described. Having held that a special relationship existed, and that the disclaimer in this case was insufficient to exonerate the firm from liability, he found for the purchaser.
4. JLL has appealed that judgment. The “proximity issue”, in fact, does not present much difficulty. The critical point in the case is largely contextual and fact dependent, that is, the presentation and terms of the disclaimer itself, when seen in their full context. The key point there is not the existence of an exclusion clause, but rather the terms in which this clause is expressed, its location in the brochure, and the other statements to be found in the brochure which were presented as highly factual. Thus, I see this appeal is quite a narrow one.
5. The vexed issues of proximity and reliance in misrepresentation have recently been considered by this Court. (See Cromane Fisheries Limited v. Minister for Agriculture & Others [2016] IESC 6, [2016] I.L.R.M. 81 delivered on the 22nd February, 2016; also, Atlantic Marine Supplies v. Minister for Transport & Others [2016] IESC 43, [2016] 2 I.L.R.M. 397 delivered on the 19th July, 2016. But for the purpose of this appeal, between two private parties to this commercial transaction, questions of proximity are to be seen through the lens of the judgments delivered by this Court in Wildgust v. Bank of Ireland & Others [2006] 1 IR 570. The High Court judgment relies heavily on the principles established there. The correctness of the judgments in Wildgust, and the principles expressed therein, were not challenged in this appeal. It is, therefore, helpful now to set out what was established in that authority, and compare the principles with their application in the instant case at first instance.
6. In Wildgust, Kearns J. pointed out at p. 593, par. 43 that, as long ago as Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465, a negligent, though honest, misrepresentation could give rise to an action for damages for financial loss, caused thereby, on the basis that a duty of care was implied when a party seeking information from a party possessed of a special skill, trusted the person imparting that information to exercise due care, when that party knew, or ought to have known, that reliance was being placed on his or her skill and judgement. This Court held that, in respect of a negligent mis-statement, the proximity test included a person of limited and identifiable class, when the maker of the statement could reasonably expect, in the context of a particular enquiry, that reliance would be placed thereon by such persons to act, or not act, in a particular manner in relation to that transaction. Concurring, Geoghegan J. held that personal reliance was not always essential, and that, for the purposes of the appeal, he, for his part, would be prepared to assume that the law of negligent mis-statement fell into a separate code from the law of negligent acts.
7. In Hedley Byrne, the only relationship alleged was between the enquirer and the person giving the information. In Wildgust, Geoghegan J. expressed the view that the court’s finding (which related to information given to a third party also affected by the incorrect information), was only a small extension of the principle that a court might hold there was a special duty of care when a person, even one who was not the enquirer, was damaged as a consequence of an incorrect statement; and where the existence of such an affected person, and the reasonable foreseeability of such damage, ought to have been present to the mind of the person imparting the information. He held that, quite apart from contractual or fiduciary relationships, a duty of care in the making of a statement may be held to arise in the context of “other special relationships”, which the court may find to exist in particular cases. He held this duty might emerge when it was plain that the relationship was such that a party seeking information or advice was trusting the other party to exercise such a degree of care as the circumstances required, where it was reasonable for the party seeking information to do that, and where the imparter of information gave advice when he knew, or ought to have known, that the enquirer was relying upon him.
8. Kearns J., who delivered the main judgment in Wildgust, cited with approval the judgment of the House of Lords in Caparo Industries Plc. v. Dickman [1990] 2 AC 605. It is true that, in his speech there, at p. 620 – 621, Lord Bridge of Harwich expressed the view, having regard to the development of the law in respect of negligent mis-statement, that:
“… The salient feature of all these cases is that the defendant giving advice or information was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on that advice or information in deciding whether or not to engage in the transaction in contemplation. In these circumstances the defendant could clearly be expected, subject always to the effect of any disclaimer of responsibility, specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So also the plaintiff, subject again to the effect of any disclaimer, would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it.” (Emphasis added)
The appellants rely heavily on this passage. They say that it is clear that the existence and effect of the relevant disclaimer is crucial in any given case.
9. I agree that the content and effect of a relevant disclaimer is crucial. However, to my mind, the passage just quoted must not be understood to mean that “any” disclaimer of responsibility will necessarily exonerate a defendant, but rather, an “appropriate” disclaimer should have that effect. (See the speech of Lord Goff of Chieveley in Henderson v Merrett Syndicates Ltd. [1994] 3 ALLER 506, at page 521, where that judge referred to an assumption of responsibility being negatived by an “appropriate disclaimer”. Whether the disclaimer in this case was “appropriate” is one of the main issues of contention in the case. The learned trial judge held that it was not appropriate, in the sense of being sufficient to exonerate the firm from liability. I agree with him, and would uphold this decision in full.
10. This appeal, in my view, hinges on findings of fact made by the trial judge. These are to be assessed with reference to the tests set out by McCarthy J. in Hay v. O’Grady [1992] I.R. 210, and Henchy J. in Northern Bank Finance Corporation v. Charlton [1979] I.R. 149. It is a common feature of both judgments that such findings, when supported by credible evidence, should not be disturbed by an appeal court. I consider that this appeal is, essentially, a ‘fact case’, in particular as regards the judge’s finding as to the state of knowledge of Mr. Walsh, and findings as to “market custom”. The judge’s assessments of the context and content of the disclaimer clause were reasonable. But, because of the fact based nature of these considerations, it is necessary to rehearse the High Court findings in rather more detail than might normally occur in an appeal of this type.
11. The judge’s analysis of the evidence began with matters which are not in controversy. He set out that the property was bought for Ir.£2,342,000, in a sale completed on the 28th September, 2000, some three months after the brochure was given to Mr. Walsh by a Mr. “Woodie” O’Neill, a valuer with JLL. Mr. O’Neill’s role was very significant, as will be seen. He was not called to give evidence. Mr. Walsh already held other property on the northside of Dublin. He wished to buy this property to use as units for commercial tenants.
12. The property was put on sale early in July, 2000. Mr. Walsh visited it on the 13th July, 2000, and following that, went back for a second visit. Mr. Walsh told his contact, Mr. O’Neill, that he was interested in buying, and Mr. O’Neill then gave him the sales brochure, to which reference will be made later. On the 21st July, 2000, Mr. O’Neill wrote to Mr. Walsh, telling him a number of prospective parties had shown interest, and that JLL had been instructed to finalise offers; and that, as a result, the firm had put a deadline on “best offers” of 12 noon on the 28th July, 2000. This was one week from the date of Mr. O’Neill’s earlier letter on the 21st July, 2000.
13. Mr. Walsh engaged a solicitor to examine the title. He retained a Dublin property surveyor, Mr. Val O’Brien, (who had worked for him previously), to conduct an informal “conditions survey”. But Mr. O’Brien did not measure the dimensions of the property, nor did Mr. Walsh ask him to do so. Mr. O’Brien testified that while he regularly carried out such pre-purchase surveys, he had never been actually asked to measure the floor area of a property prior to the submission of offers to a vendor.
14. Mr. Walsh made his offer for the property in an undated handwritten letter, which he said was based upon a “back of the envelope” calculation. This was predicated on the income he estimated he could receive as owner of the property, based on the rent he could potentially receive both for the ground floor and the first floor, which was, at the time Ir.£20 per square foot. His offer for the property was accepted.
Knowledge of the Disclaimer
15. The judge found that Mr. Walsh had been “generally aware” of the disclaimer contained in the JLL brochure, but could not recall whether he had read it with any care. He had, however, noted that it contained a statement to the effect that JLL had “taken every care” in preparing the brochure, and that, in his view, they were a firm of the utmost probity. The plaintiff testified that he had purchased other properties on previous occasions, but had never had a building measured before making a purchase. He relied on JLL’s reputation, credibility and integrity. The evidence was that viewings were designated to take place on Saturday afternoons, as the property was in commercial use. Mr. Walsh testified that it would be difficult to carry on commercial life if everyone had to go round with a measuring tape, so as to be sure of the measurements of premises which they were thinking of buying.
16. The plaintiff testified that his belief was that Mr. Woodie O’Neill had carried out a survey while the previous tenants were in the premises. His belief was fortified by the fact that JLL were to be paid a substantial sum in commission if, and when, the property was sold. The sale was completed on the 28th September, 2000. Between the acceptance and completion, Mr. Walsh did not requisition a measurement survey. He said he continued to rely on the description and measurements which JLL had given to him. It is noteworthy in passing that Mr. Walsh’s bank, who extended credit to him for this transaction, did not carry out a survey on the premises either. This is to be seen in light of other evidence as to what was the then accepted practice among Dublin surveyors.
17. After the sale was completed, the property was let to the Commissioners of Public Works. This letting was negotiated over a period of time, and involved substantial alterations. It was only then, that Mr. Walsh’s surveyor, Mr. O’Brien, discovered that the first floor measurement was incorrect. By letter dated the 20th March, 2001, the surveyor informed Mr. Walsh that, in fact, the total floor area of the property was 21,248 sq. feet, that is, 12,674.6 sq. feet at ground floor, but just 8,573.5 sq. feet – and not 10,463 sq. feet – at the first floor level.
18. Mr. Walsh testified that, he was astonished when he received this information, because he had believed the floor area was 20% greater, as a result of what JLL had said in the brochure concerning the sale. As to the disclaimer, he testified that his belief was that such waivers contained in brochures were only intended to safeguard auctioneers from liability in respect of minor miscalculations, but not otherwise. As a preface to what follows it is necessary to point out that it was established in evidence, and JLL acknowledged, that none of the 10 or 12 other potential investors who looked at the property carried out a measurement survey either.
An Issue in the Case – “Customary Practice”, or “The Prudent Investor”
19. What was the custom and practice among Dublin valuers and surveyors at the time? Was it customary or prudent for investors to require properties to be measured before making an offer? Was it negligent for Mr. Walsh not to requisition a survey?
20. On behalf of Mr. Walsh, Mr. Barry Smyth of De Vere White, Auctioneers, and Mr. Tony Rooney, another valuer, testified to the effect that neither of them had ever encountered circumstances where such measurements had been required. Their evidence was also to the effect that it was an understood matter that disclaimers used by most auctioneers were to be seen as covering only minor discrepancies.
21. Two witnesses testified on behalf of JLL on these issues. Mr. Peter Rowan, a surveyor and valuer (who had formerly worked for JLL), testified that a “prudent investor” should carry out a detailed inspection, and measure all floor areas, prior to purchase. Mr. Rowan’s background was generally, in advising financial institutions in property transactions. His testimony was that it would be neither normal, nor prudent, nor acceptable practice, to rely solely on the measurements contained in a sales brochure.
22. Mr. Nigel Healy, a director of JLL, testified to the same effect. Regarding the disclaimer, Mr. Healy testified, it was to be seen as a form of “advice” to a purchaser to carry out inspections and property measurement as a form of due diligence. He said that the measurements in the brochure were to be seen merely as a general guide. Mr. O’Neill did not give evidence. Thus, how the measurements came to be placed in the brochure remained unexplained.
23. In this appeal, counsel for the appellant submitted that the trial judge had erred by not attaching sufficient weight to the fact that Mr. Smyth had testified he would not contradict Mr. Rowan’s opinion on the prevalent practice as to measurement in Dublin. It is said that the judge failed to have regard to the fact that Mr. Smyth had, in terms, “expressly deferred” to Mr. Rowan’s testimony. In fact, although Mr. Smyth did use the word “defer”, I think the situation was slightly more nuanced. There was clear evidence as to what was then common practice in the Dublin property market. Mr. Rowan’s evidence is to be seen at a number of levels. His testimony was to the effect that it was neither acceptable nor prudent practice to purchase without measuring, nor was it normal.
24. Counsel’s note of the evidence shows that, in fact, the judge asked Mr. Rowan a number of rather searching questions regarding his testimony. The judge pointed out to him that twelve potential purchasers had viewed the property, and that not one of those had gone back to JLL to bring to that firm’s attention that there had been a discrepancy of approximately 2,000 ft. between what the brochure said, and the actuality. The judge based his findings, in part, on inference from this evidence.
25. Counsel for the appellant also submitted that the trial judge did not adequately take into account evidence adduced by Mr. Nigel Healy, and Mr. Rowan, to the effect that the disclaimer not only covered minor discrepancies, but rather all issues. In fact, this point was addressed by the trial judge, in the context of his findings as to evidence regarding the common and accepted practice in the Dublin property market in the year 2000. That evidence was to the effect that this understanding was that disclaimers related only to minor discrepancies, and not all issues. His finding on this was a question of fact.
26. The appellants rely on the judgment of Walsh J. in O’Donovan v. Cork County Council [1967] I.R. 173, at 193. There, Walsh J. observed, in the context of a medical negligence action, that if there was a common practice which had inherent defects, which ought to be obvious to any person giving the matter due consideration, the fact that it was shown to have been widely and generally adopted over a period of time, did not make the practice any less negligent. There are passages in the judgment of Henchy J. in Roche v. Peilow [1985] 1 I.R. 232, at page 254, to similar effect. However, reliance on these two statements is apt to mislead, because it might suggest that these questions, so important for determination in this case, were simply matters of law. In fact, this is not so in this case. Having observed ([1967] I.R. 173 at 193) that “Neglect of duty does not cease by repetition to be neglect of duty”, Walsh J. went on at p. 193 – 194 to enter the following caveat:
“… Furthermore, if there is a dispute of fact as to whether or not a particular practice is a general and approved practice, it is a matter for a jury to determine whether or not the impugned treatment is general and approved practice. In such circumstances, a jury would be told that if they find that there is such a general and approved practice they must acquit the practitioner where there is not the qualification that I have referred to above. If some witnesses say that a particular practice is a general and approved one, and other medical witnesses deny that, then it is an issue of fact to be determined as any other issue of fact. This particular issue cannot be withdrawn from a jury merely because the practice finds support among some medical witnesses, if there be others who deny the fact that it is [a] general and approved practice.” (Emphasis added)
27. Thus, in this “post jury” era, whether or not adherence to a general custom constituted negligence, and whether it contained an inherent defect, were matters for the trial judge to determine as questions of fact. He resolved these in favour of the plaintiff.
28. In giving judgment, the trial judge observed that JLL were a large firm, in existence for a considerable period of time, who had justifiably acquired an excellent reputation for competence, probity and integrity in its business dealings. JLL held itself out as a company with particular skills and expertise in the commercial property markets, both in Ireland, and elsewhere. It relied upon its reputation for excellence in order to encourage prospective customers to avail of its services.
29. He held that the brochure was expressly designed to attract the attention of potential purchasers, in order to encourage them to bid or tender against one another for the property; that the brochure was an integral part of the tendering process, with the explicit intent of maximising the price which potential purchasers would pay; and that was issued with the implicit motivation of maximising the fee which JLL would obtain upon the sale of the property. Thus, he concluded, it was to be expected that potential purchasers would rely upon the information contained in the brochure when deciding whether or not to purchase. The brochure had been published by JLL for the express purpose of influencing a limited number of identifiable persons, and the publication of the disclaimer was immaterial to that fact. The judge held that Mr. Walsh was among the persons to whom the brochure was expressly directed. He, (the purchaser), had been influenced by the information published within the brochure, and had relied on its contents, (including the measurements), when calculating his precise bid or tender for the purchase of the property. He accepted the evidence adduced on behalf of the plaintiff as to what was the general and approved practice in the Dublin market. These were specific findings of fact, based upon credible evidence. It is obvious there was contrary evidence from Mr. Rowan: but here the trial judge’s role was pivotal.
The Brochure
30. The judge carefully analysed, in detail, the extent to which the property was described, in quite large type, on the front page of the brochure, as being of “2,142 m2 – (23,057 square feet), with a site area of 0.13 hectares (0.31 acres)”. On the back page, the brochure described the ground floor as having an area of 12,594 square feet, and the first floor as having an area of 10,463 square feet. This gave rise to a total square footage of 23,057 square feet as set out on the brochure. Corresponding measurements were provided in square metres.
31. Turning to the exemption or waiver clause, the judge pointed out that this was to be found at the bottom of the front page of the brochure, in words, “in very small type”. (See [2009] 4 IR 401 at 404.) The clause read: “Whilst every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given.” In my view, his criticisms of the brochure were well justified.
32. I now wish to explain, in a little more detail, other areas where, to my mind, the appellants’ submissions are legally misconceived. While not mentioned in argument, the facts of this case are quite distinct from the those of Scullion v. Bank of Scotland Plc. [2011] IWLR 3212, where the Court of Appeal of England and Wales held (at p. 3226 at par. 54) that it was to “be expected” that a commercial purchaser would obtain an independent valuation (See Charlesworth on Negligence, Thirteenth Ed., Sweet & Maxwell, 2014, p. 31, paragraph 2-30). The findings of fact here are entirely different, and have been described.
33. To my mind, the judgments of the Court of Appeal in Yianni v. Evans [1982] QB 438, and Smith v. Bush [1990] 1 AC 831, must be seen against their own quite distinct and different factual background. Unlike Yianni and Smith, this case does not concern reliance on building society/surveyor statements, or representations from such sources. Thus, those judgments are not on point, and, in any case, this appeal must be looked at from the standpoint of the findings of fact on the evidence. It is nowhere suggested that the respondents’ evidence was not based on evidence. I see no reason to interfere with the judge’s findings on these questions. It is necessary to next consider the disclaimer.
Assumption of Responsibility and The Disclaimer
34. In law and commerce, questions,such as assumption of responsibility, waiver and disclaimer clauses, have an importance which go far beyond the narrow range of this case. Anyone who engages in an online commercial transaction will find that these clauses are said to be part of the contract. To my mind, a clause of such potential importance must be very carefully analysed.
35. The appellants rely on the opinion of Lord Goff of Chieveley in Henderson v. Merrett Syndicates Ltd. [1994] 3 ALLER 506. Dealing with the assumption of responsibility, he stated, at page 521:
“It follows that, once the case is identified as falling within the Hedley Byrne principle, there should be no need to embark upon any further enquiry, whether it is “fair, just and reasonable” to impose liability for economic loss – a point which is, I consider, of some importance in the present case. The concept indicates too that in some circumstances, for example where the undertaking to furnish the relevant service is given on an informal occasion, there may be no assumption of responsibility, and likewise that an assumption of responsibility may be negatived by an appropriate disclaimer.” (Emphasis added)
36. The appellants also rely on a passage in White v. Jones [1995] 1 ALLER 691, at 715 – 16, where Lord Browne-Wilkinson, speaking for the majority in the House of Lords, laid emphasis on the importance of the concept of assumption of responsibility, to the following effect:
“Just as in the case of fiduciary duties, the assumption of responsibility referred to is the defendants’ assumption of responsibility for the task not the assumption of legal liability. Even in cases of ad hoc relationships, it is the undertaking to answer the question posed which creates the relationship. If the responsibility for the task is assumed by the defendant, he thereby creates a special relationship between himself and the plaintiff in relation to which the law (not the defendant) attaches a duty to carry out carefully the task so assumed.”
37. Counsel for the appellant points out that the disclaimer referred to the particulars of the sales brochure, and invited the respondent to carry out the task of measuring the particulars himself. It is said it was open to the respondent to have the area measured when the appellant facilitated him with surveying the property, but that he failed to do so.
38. In Patchett & Another v. Swimming Pool & Allied Trades Association Ltd. [2009] EWCA Civ 717, the claimant suffered damages when the contractor he had engaged to construct a swimming pool went into liquidation. Before retaining the contractor, the claimant consulted a website which was maintained by the defendant which asserted that members of the Association were checked for solvency when they became members, and their work was covered by a guarantee. It was not clear, however, that the builder was not a full member. Lord Clarke M.R. found that there was no representation as to continuing solvency, and the claimants had not taken the steps recommended by the website. To my mind, the nature of the representation and the extent of the invitation are to be distinguished on the facts of this case.
39. In my view, the critical issue is not just the invitation; but, additionally, the representation, that is, the factual context against which the invitation was conveyed. What is at issue are not only principles of law, but rather the application of those principles in the context of the facts as found in this case. The true question here is, whether the facts, and in particular the brochure itself, created a duty to take reasonable care to provide accurate information in the brochure. If JLL did owe that duty, then they breached it by providing inaccurate figures.
40. If the disclaimer had been clear to the normal reader and, therefore, “appropriate”, I would entirely accept the appellants could avoid liability. But, the trial judge held that the disclaimer, in its form, was a “quite inadequate means” of notifying prospective purchasers that the seemingly precise measurements of the floor areas, so prominently published within the sales brochure, were wholly unreliable. He laid emphasis on the very precise nature of the figures provided by JLL. He described the waiver, as having been expressed in an “enigmatic sentence”, in small print, wherein JLL had claimed, in terms, to have taken “every care” in the preparation of all the particulars within the brochure, albeit in the context of advising prospective purchasers to “satisfy themselves as to the correctness of the information given”. He held that JLL themselves had arranged to have the property surveyed and measured. This was to accommodate potential purchasers. They arranged to have the results published in the brochure, but the floor area had been negligently measured.
41. The judge found the auctioneers had failed to take appropriate steps to ensure that the information published was accurate. He pointed out that no evidence had been adduced to the effect that it was the practice for prospective purchasers to measure the floor areas of properties after entering into a contract, but before completion. I do not disagree with any of the trial judge’s descriptions of the disclaimer clause. These were matters of fair inference and observation, I believe one could go further: the type face of the disclaimer is better described as “miniscule” rather than small. The findings of fact were based on evidence before him.
42. The test to be applied to the disclaimer is an objective one. On an objective reading what is the effect of the disclaimer, seen in the context of the factual findings? The judge rejected the suggestion that the words in the disclaimer were to cover every contingency. His rejection was supported by credible evidence from Mr. Walsh and his witnesses. I do not accept that an objective assessment of the disclaimer would put the reader of the brochure on a “clear duty of enquiry”, or that it would make it clear to any person reading it that they must go and verify what was contained in the brochure.
43. Counsel for the appellant submitted that the terms of the disclaimer clause were clear and unambiguous. I disagree. To my mind, the disclaimer itself contained a number of representations. The first was to the effect that this highly reputable firm had taken “every care” in the preparation of the particulars. Second, it was represented that the measurements were believed to be correct, although they were not warranted, and that intending purchasers should satisfy themselves as to those measurements. This clause was ambiguous, in the sense that, while it conveyed an invitation, it also contained a representation that acceptance of the invitation was hardly necessary.
44. It is, in my view, erroneous simply to suggest that the very existence of ‘any’ disclaimer clause is sufficient. I do not agree that the statement of law cited from Caparo v. Dickman, quoted earlier at par. 7 supra, is to be read with the broad meaning that any “disclaimer clause” will be sufficient to exonerate the proferror from responsibility. What is, in my view, determinative is, rather, an objective reading of everything that is said in the waiver. It contained an explicit representation to the effect that ‘every care’ had been taken by the firm. This is to be seen in the context of the findings of fact regarding the practice in Dublin among auctioneers, valuers, and surveyors. There was no finding of fact that this was an inherently defective practice.
45. A further key question is the extent to which, upon an objective reading, the potential purchaser was put on notice? It is, of course, true that Mr. Walsh was aware as to the existence of a waiver. But, as the judge found, he was not aware of its purported scope. This was a reasonable inference based on the judge’s assessment of the witness.
46. To the eye of a potential purchaser then, the brochure, which came from a highly reputable firm, conveyed that the firm had taken “every care” in carrying out the measurements of the property. What else was a purchaser to believe? The brochure elsewhere conveys that what was given were accurate, precise measurements in square feet. By its reputation, and by the precise nature of the measurements, the firm conveyed the message that the measurements were reliable. The situation is not altered by deploying the term “while”, as a preface to the disclaimer.
47. For a court to be asked to carrying out a “weighting process” between one half and the other half of this disclaimer clause is itself a rather artificial process. But it can be assisted by looking to the backdrop of the evidence as to how that disclaimer was generally understood. The disclaimer clause contained a representation, intended to instil belief, regarding care. I do not accept that an objective reading entails that the reader should treat the latter part of the waiver as being, in some way, more legally significant than the former. I reject the proposition that the first part of the disclaimer is mere “flowery language”, as it was called, and that only the latter part is legally significant. A disclaimer can only be given the legal significance imparted by all of the actual words it contains, and the sense that all those words, taken together, would reasonably convey. If there is opacity, or ambiguity, it should, at minimum, be strictly construed; if necessary, it should be interpreted contra proferentem. I choose the former.
48. There is, surely, something rather incongruous about a highly reputable firm of auctioneers and valuers seeking to make the case that potential bidders should not, really, lend total credence to, or place complete faith in, their own representation, that they have taken “every care” in preparing measurements. In fact, the evidence did not at all establish that the firm had taken “every care”. The trial court was left in the situation where it might infer that JLL had either carried out the measurements incorrectly and negligently, or, alternatively, had itself conveyed information which was communicated to JLL by another, accepted it at face value, and put it in the brochure, without any intermediate checking. At risk of repetition, the appellant did not call any evidence on this issue.
49. There was a duty upon JLL to take reasonable care to provide accurate information. If the firm owed such a duty, they were in breach of that duty. To my mind, there is only one answer to the question, whether, objectively considered, the information on the website created a relationship of proximity between the parties? It did. Equally, I would hold there is only one answer to the question as to whether it is fair, just and reasonable to impose a duty of care. In my view, it is.
50. I do not think that the terms of the disclaimer, or the findings of fact, support the proposition that what is in question here is some form of “first step”, where the reader is put on enquiry to take further steps. The reader was not told that the figures on the brochure were “estimated” or “approximate”. One cannot avoid the conclusion that the disclaimer was intended to induce a state of belief or trust, which two attributes are fundamental to all business transactions. The precisely conveyed actual words and figures, in the context of their presentation, can only be viewed as an assertion of the appellant’s own corporate belief of the truth of what was said in the brochure, rather than some ‘best guess’, or an ‘estimate’. The measurements contained were not “flowery statements”, or guesses, or estimates, but rather conveyed the impression of being statements of hard, physical fact.
51. Counsel for the appellant has drawn our attention to the judgment of the Court of Appeal of England and Wales in McCullagh v. Lane Fox & Partners [1996] PNLR 205. There, the Court of Appeal held that an estate agent, who carelessly mis-described the size of a property, was not liable to a purchaser who bought the property relying on the mis-description, if the mis-description was part of the particulars which contained standard disclaimers.
52. At first sight, the judgment would appear to favour the appellant. But, what is instructive, and I believe critical, are the form and words of the disclaimer which that court held would put a purchaser on notice that he or she should carry out their own checks. The disclaimer, specifically, negatived any assumption of responsibility for the statements contained in the brochure. It told the recipient, in terms, that if he or she chose to rely upon it, then they must realise that the maker of the statement was not accepting responsibility for the accuracy of what was said. The nature and character of the disclaimer was, unavoidably, part of the factual circumstances, and part of the transaction. It clearly conveyed the issues where the valuers were, and were not, accepting responsibility. It read, as set out at page 209 of the Report:
“1. These particulars do not constitute, nor constitute any part of, an offer or contract.
2. All statements contained in these particulars, as to this property are made without responsibility on the part of Lane Fox or the vendors or lessors.
3. None of the statements contained in these particulars, as to this property are to be relied on as statements of representations of fact.
4. Any intending purchasers must satisfy themselves, by inspection or otherwise as to the correctness of each of the statements contained in these particulars.
5. The vendors do not make or give, and neither Lane Fox, nor any person in their employment has any authority to make or give any representation or warranty what[so]ever in relation to this property.”
53. What could be clearer? The terms of that disclaimer were crystal-clear. Those auctioneers announced that they unconditionally disclaimed any responsibility for the contents of the brochure. The disclaimer negatived, in terms, one of the essential elements for the existence of a duty of care. The purchaser was told that, if he, or she, chose to rely upon the description contained in the brochure, they must realise that the auctioneers were not accepting responsibility for the accuracy of the representations. There was nothing opaque or ambiguous about what it said. It was not in small print. The contrast with the disclaimer in the present case is self-evident.
54. To my mind, the trial judge carefully analysed each of the principles identified in Wildgust. He held the foreseeability and proximity tests to be satisfied. He was satisfied there was communication to a member of an identifiable class who would rely upon it. Correctly in my view, he held that the waiver carried with it a representation from a firm of the highest integrity that every care had been taken in preparing the brochure. He concluded on cogent evidence that the information given was for a specific purpose, actually made known to the purchaser, in circumstances where the firm should have known that the information would be relied on, and acted upon. He held on the facts that the remainder of the disclaimer had no legal efficacy. I would uphold the judgment of the High Court, and dismiss the appeal.
Farrell v Ryan
[2016] IECA 281
JUDGMENT OF MR JUSTICE MICHAEL PEART DELIVERED ON THE 14TH DAY OF OCTOBER 2016:
1. This judgment relates only to the respondent’s cross-appeal against the finding of the trial judge (Cross J.) that the appellant’s claim for damages for personal injury was not statute-barred.
2. I have read the judgment of Ms. Justice Irvine on the appellant’s appeal against the dismissal of her claim on the merits, and I agree with her conclusion that her appeal fails. Given that conclusion, it is not strictly necessary to address the respondent’s appeal in relation to the statute, but lest it be of benefit to other plaintiffs situated similarly to Mrs Farrell, it may be helpful to determine it also.
3. For the reasons that appear below, I believe that the trial judge fell into error when he concluded that the appellant’s claim was not statute barred.
4. Section 3(1) of the Statute of Limitations (Amendment) Act, 1991, as amended by s. 7 of the Civil Liability and Courts Act, 2004 (“the statute”) introduced a special limitation period for actions in respect of personal injuries. It provides, as amended:-
“3.(1) An action other than one to which section 6 of this Act applies, claiming damages in respect of personal injuries to a person caused by negligence, nuisance or breach of duty (whether the duty exists by virtue of a contract or of a provision made by or under a statute or independently of any contract or any such provision) shall not be brought after the expiration of two years from the date on which the cause of action accrued or the date of knowledge (if later) of the person injured.”
5. Whether the appellant’s claim is statute barred depends on what is as a matter of probability the earliest date on which she had sufficient knowledge that she might have a cause of action in respect of injury sustained as a result of the ante-natal symphysiotomy performed on her on the 25th September 1963 at the Coombe Hospital some twelve days prior to giving birth to her first child. There are three competing dates to be considered.
6. The first date is 18th February 2010 when a Prime Time programme was broadcast by RTE on the subject of symphysiotomies that had been carried out in Dublin hospitals in the 1960s. The trial judge concluded that this was the date on which her friend, Monica Teeling, who was watching the programme, had contacted her to tell her that there was a lady being interviewed about something which she thought sounded very like what the appellant had described as having happened to her at the Coombe Hospital when she had her first child. The appellant then switched on her television, but apparently was just too late as the credits were going up. She did not have time to write down a telephone number which was flashing across the bottom of the screen for anybody who wanted to get further information on the topic. Two days later, however, on the 20th February 2010, she wrote to the Coombe Hospital looking for her medical records in respect of the time she was there for the birth of her first child in 1963. Though that letter was received by the hospital on the 26th February 2010 she did not receive her records at that time. It appears that the hospital contacted her for more information as they could not trace her records with the brief information that she had provided in her letter. However, the appellant failed to provide the further information sought.
7. The second possible date is 21st June 2011 when she watched the Vincent Browne programme on TV3 which was dealing with the same subject matter. This is the date on which the plaintiff in her evidence said she had been contacted by Monica Teeling. But, as found by the trial judge, she was mistaken in that regard. That contact was made during the Prime Time programme as stated in the previous paragraph. I should perhaps add that the appellant and Monica Teeling had become friends in 1979 and later years through their employment in Jurys Hotel, and there had been conversations between them and other ladies there from time to time about their experiences of childbirth. The appellant knew that something had been done to her twelve days before the birth at the Coombe Hospital because she remembered that she had been brought to the theatre, had been anaesthetised, and had later woken up in her hospital bed in a most uncomfortable state which she described in her evidence. She had a number of physical difficulties thereafter about which she gave clear evidence. Many of those difficulties remained with her for years, and in fact some endure to this day. But it is clear from her evidence nonetheless that she was not familiar with the term ‘symphysiotomy’ and that this is what had been done to her.
8. The third possible date for the accrual of her cause of action, and the one which the trial judge found to be the date from which time started to run is August 2011 when she first received her medical records from the Coombe hospital following a further request for them which she made after the Vincent Browne programme in June 2011.
9. If the date on which her cause of action first accrued for the purpose of the statute is the 18th February 2010, then her claim is clearly statute barred because she commenced her proceedings more than two years from that date on the 6th September 2012. Conversely, if the date of first accrual is 21st June 2011, or any date later than that on which she actually received her medical records, her proceedings are commenced within time, and are not statute barred.
10. In her Replies to Notice for Particulars the appellant had stated that she first became aware that she had had an unnecessary symphysiotomy after she had seen the Vincent Browne programme on the 22nd June 2011. She made no mention of the earlier Prime Time programme. Further particulars were sought in relation to this reply, and by way of further reply the appellant stated that having seen that programme she suspected that she may have undergone an unnecessary symphysiotomy operation, and stated that this was the first time that she recalled hearing the name of the operation.
11. Some doubt as to the accuracy of her statement that it was the Vincent Browne programme in 2011 which first alerted her to any knowledge that she may have undergone an unnecessary symphysiotomy in September 1963 arose because of a comment in a report obtained by her from a psychiatrist, Veronica O’Kane. That report when giving a narrative of the plaintiff’s history stated: “A friend rang Mrs Farrell following a Prime Time programme on RTE about symphysiotomies that had been conducted in Ireland” [emphasis added]. That is the programme that went out on the 18th February 2010. The plaintiff’s evidence established that the only reason she had first sought her medical records was because she had been alerted by her friend to the broadcast about symphysiotomies and wished to establish if her symptoms were due to that procedure. There is no doubt that she first sought her medical records on the 20th February 2010.
12. In relation to this controversy as to which programme first prompted the appellant to seek her medical records, the trial judge concluded at para. 6.7:-
“As a matter of probability, I believe that the plaintiff was contacted by Ms. Teeling after the Prime Time programme because by letter dated 20th February 2010, shortly after the Prime Time programme, the plaintiff first sought her medical records from the Coombe. This letter was received by the Coombe on the 26th February 2010”.
13. Nevertheless, the trial judge went on to state that it was not until the appellant actually received her medical records from the Coombe Hospital some time in August 2011 following the Vincent Browne programme on TV3 when she had again written to the Coombe looking for them that her date of knowledge commenced for the purposes of the statute, and that she could not have had sufficient information until then to justify the commencement of proceedings. He stated the following:-
“It is only at that stage when she had the hospital notes that the plaintiff could be said to have knowledge to ‘justify embarking on the preliminary to issue a writ’. I believe that up to her obtaining the requisite notes from the hospital, the plaintiff’s position was as in sub-paragraph (4) of the judgment in Spargo i.e. she may have thought that she knew the acts or omissions that she should investigate but it was quite possible that she was barking up the wrong tree. She may have been aware by that stage, in 2010, that the procedure carried out on her was indeed a symphysiotomy but she was not armed with any information that could have justified her issuing proceedings against the defendants until the furnishing of the records. The plaintiff’s date of knowledge commences in August 2011 when she was furnished the records [and] is inside the two year period and accordingly the defendant’s plea under the Statute of Limitations must fail.”
14. The respondent points firstly that the fact that the trial judge was satisfied that the plaintiff’s friend had contacted her during the Prime Time programme in February 2010, and not the Vincent Browne programme in June 2011. Secondly, the respondent points to the fact that it was always the plaintiff’s case on the pleadings and in her evidence that it was on foot of her friend’s contact that she saw the programme which first caused her to immediately write to the Coombe for her records. Indeed, it is evident that no other explanation was offered by the plaintiff as to why she might have sought her records on the 20th February 2010. It is submitted also that the date for the accrual of the cause of action cannot be the date upon which records are actually received, since that would mean that the period under the statute could be indefinitely prolonged by the plaintiff’s own inactivity, and dependent entirely upon a plaintiff’s own actions in seeking her medical records. It is submitted that such an indefinite and uncertain method of determining when the cause of action accrued could not be what the Oireachtas intended when enacting the amendment of the statute in relation to a date of knowledge test for personal injuries.
15. It is submitted by the respondent that it is clear that the appellant knew that on the 25th September 1963 something had been done to her in the Coombe and that she had the difficulties thereafter that she was well able to give details of in evidence. It is submitted that she was able to describe to her friend, Monica Teeling, enough about what had been done and the effect it had on her for Monica Teeling to suspect when she saw the Prime Time programme that what had been done to her was a symphysiotomy. It is clear that this is what Monica Teeling told her, since she immediately sought her hospital records from the Coombe hospital. The respondent submits that the fact that she failed to supply the information sought by the hospital to help them trace her records is not something from which she can benefit by way of postponing the date of accrual of her cause of action, if at that date she knew enough to appreciate that she might have a claim. It is submitted that the trial judge was wrong to conclude that the knowledge that she needed to have was “knowledge justifying the issue of the writ” and that the medical records were required by her before that point was reached.
16. As to what the appellant knew by the 18th February 2010 the respondents identify the following from the evidence which she gave:-
• She was able to describe to her friend and work colleagues her experience of childbirth and knew that what she had gone through was not normal.
• She knew that in 1963 she had undergone some form of operation on the 25th September 1963, twelve days before her daughter was born, and that it was done to her pelvis.
• She knew that she had a scar which was supra-pubic at the lower end of the abdomen which she did not have prior to the 25th September 1963.
• She knew that she had been unable to walk for a considerable period after the birth of her daughter, that she had never been able to again ride a bicycle (something that she had done a lot previously), had a pain in her back that prevented her from doing her job properly at Jurys, and her friends helped her out with carrying heavy trays and so forth.
• She knew that thereafter she had never been able to cross her legs.
• She must be taken to have considered/known that she had suffered a significant injury as a result of what had happened to her at the Coombe in 1963.
• She knew from her conversations that the others to whom she spoke had not experienced these symptoms after their childbirths.
• She recalled during her evidence a particular conversation in 2006 with Monica Teeling when she had discussed what had happened to her in the Coombe and the effect it had had on her life, and said also that she had not had another conversation with her between that date and Monica Teeling’s contact on the 18th February 2010.
• She knew nevertheless that Monica Teeling had been able to tell her after the Prime Time programme that what she had told her about, four years previously therefore, sounded like she had had a symphysiotomy.
• She knew enough from that conversation to decide that there was something she ought to inquire into, and that she should write to the hospital for her records for that purpose.
• While she denied in her evidence that she knew the word ‘symphysiotomy’ before 2011, a number of doctors whom she visited with other complaints in 2001, 2003 and 2007 have noted the history given by her as including ‘a symphysiotomy’. She denies that she used that word as she had not heard of it, and the doctors in question gave evidence that if that word had not been used by her they would not have noted it. Even if one accepts her evidence, it is clear that she was able to say sufficient about what procedure she had had for each of these doctors to understand it to have been a symphysiotomy.
17. It is submitted by the respondent that this all makes clear that the appellant had ample information perhaps by 2006 but certainly by the time Monica Teeling had spoken to her on the 18th February 2010 about what she had seen on Prime Time to be taken as knowing that she had suffered personal injuries as a result of the symphysiotomy, and that this is borne out by the fact that within 48 hours of that conversation she had written a letter to the Coombe seeking her medical records.
18. The respondent has identified a particular passage of evidence given by the plaintiff about her conversation with Monica Teeling as the Prime Time programme was ending. It is submitted that the appellant’s case had been predicated upon this conversation taking place only in June 2011 after the Vincent Browne programme. The state of knowledge that the appellant was saying therefore that she had as of only June 2011 must be attributed to her as of the 18th February 2010 as it must be the same conversation since she gave no evidence of another such conversation. It is just that she had got that date wrong. The passage to which particular reference has been made in this regard on Day 2 and appears at pages 19-20 of the transcript as follows:-
“A. I didn’t actually see the programme. It was what Monica told me that I referred to that. I saw the end of the programme where the credits were going.
Q. But you were aware what the programme was about?
A. Yes – because Monica told me what the programme was about.
Q. After that programme you suspected that you may have undergone an unnecessary symphysiotomy operation?
A. That is correct.
Q. Why did you suspect that?
A. Because of the description that Monica was giving that I had similar, what do you call it, effects.”
19. Given the trial judge’s clear finding that this conversation occurred not in June 2011 as the appellant had pleaded and relied upon for the date of her first knowledge for statute purposes, but on the 18th February 2010, the respondent submits that the trial judge erred in his conclusion that it was not until she received her medical reports in August 2011 that she had sufficient knowledge for the statute to start to run against her.
20. The appellant counters these submissions by urging the Court to have regard to the very limited state of her knowledge of what had been done to her in 1963, and her attribution during her evidence of many of the symptoms which she described as being simply a consequence of a forceps delivery. It is submitted that the preponderance of the evidence, and which was accepted by the trial judge, was that she did not know the word ‘symphysiotomy’ on the dates on which she was said to have used that word when visiting the three doctors referred to in 2001, 203 and 2007, and that it was not until she received her records in August 2011 that she first was aware of the word, and that even at that point what had struck her most when she read the records was that her daughter had been difficult to revive, and she even saw what appeared to be the word ‘symphysiotomy’ crossed out on the records.
21. It is submitted that at best her state of knowledge was more like a state of confusion, and that the most that can be said following her conversation on the 18th February 2010 with Monica Teeling is she had a suspicion that she had undergone a symphysiotomy, but that she could not have known that it was an unnecessary procedure until she obtained her hospital records, nor that it had caused the symptoms that she was able to describe as having eventuated following the birth of her daughter.
22. The evidence is clear that the appellant knew that in 1963 prior to the birth of her first child some procedure had been done to her. She was able to give very graphic evidence of what she was aware of in the immediate aftermath of that operation, and of the very difficulty and traumatic effect that it had on her thereafter. But it is clear also that at that time she did not know it had been a symphysiotomy, nor had she even heard that word. Indeed it is perfectly understandable that she would not have heard of the procedure, let alone what it entailed. It follows that she could not at that time have been in a position to know or even suspect that what had been done to her may have been unnecessary.
23. As I have already stated above, the appellant in her Replies to Particulars had stated that she only became aware that her symphysiotomy was unnecessary after the Vincent Browne programme in June 2011, and later clarified in further particulars that it was only after seeing that programme that she suspected that she may have undergone an unnecessary symphysiotomy. She clarified also that this was the first time she recalled ever hearing the name of the procedure.
24. Given the finding by the trial judge that in fact it was the Prime Time programme in February 2010 and not the Vincent Browne programme in June 2011 that first alerted her to these matters, since she had immediately afterwards written to the Coombe hospital for her records, those Replies to Particulars must be read mutatis mutandis by reference to the earlier programme.
25. The question that then arises is whether the information which the appellant had by 18th February 2010, which made her to want to obtain her medical records from the hospital, was sufficient “to mark the point at which the statute started to run” as it is put by McGuinness J. in Cunningham v. Neary [2004] IESC 43, or whether as the trial judge concluded, that point was not reached until she actually received her medical records in August 2011 having again requested them in the aftermath of the Vincent Browne programme.
26. As the respondent has submitted, information from media sources can be sufficient to provide enough information for the clock to start running for the purpose of the statute. It was submitted also that this is the very reason why the plaintiff in her Replies to Particulars associated her first knowledge as being the date on which she saw the Vincent Browne programme (that must now be taken to have been the Prime Time programme). In that regard, McGuinness J. stated in Cunningham v. Neary [supra]:-
“In Gough v. Neary [it] seems clear that the plaintiff’s ‘knowledge’ that her operation was unnecessary derived solely from the December 1998 reports in the media. This was the fact that was ‘capable at least upon further elaboration of establishing a cause of action’. There is no indication that she had an expert medical report available to her before she initiated proceedings against the defendant. Knowledge based on media reports rather than full medical knowledge was the ‘knowledge that her hysterectomy was unnecessary’ which was held by the court to mark the point at which the statute started to run”.
27. It is incorrect as a general proposition that a plaintiff may wait until she receives her medical records before time starts to run against her under the statute. That would give a plaintiff control over when time starts to run, as it would be dependent on how long the plaintiff chooses to wait before seeking her records. If a plaintiff has had an operation or some procedure carried out, and thereafter has suffered adverse sequelae in the nature of a personal injury reasonably attributable to what was done, she does not need to wait for her hospital records or other records to arrive before she can be taken to know that she has a cause of action.
28. Moving from that general comment to the present case, the question is whether what the appellant knew by the time she wrote to the Coombe Hospital on the 20th February 2010 was sufficient to start time running against her. We know from her evidence that she did not actually see the Prime Time programme. Therefore she did not gain any particular information from that programme itself. What caused her to seek her records was clearly the combination of what she knew had happened to her, the after effects of what had been done and which she had told Monica Teeling all about over the years, and the information that Monica Teeling was able to impart following what she had seen on the programme, and which suggested to Monica Teeling that what the appellant had had done to her was a symphysiotomy.
29. Whatever she knew at that point in time was sufficient for her to want to seek her medical records. I consider that the respondent is correct to identify the matters to which I have referred at para. 15 above as being at least some of what the appellant knew by the 18th February 2010. In my view the trial judge was incorrect to conclude that she needed to know more than that before time started to run under the statute, and in particular that she needed her medical records before she could be said to have enough knowledge to justify the commencement of proceedings. In my view that was the wrong test. She did not need to know at that point that she had a good case. It was sufficient if she had enough knowledge to connect her injuries to the procedure which she knew had been carried out on her in 1963, and as she admitted herself in her evidence, she knew on the 10th February 2010 that the symphysiotomy she underwent was unnecessary. I believe that the evidence is clear that she had that knowledge as of the 18th February 2010. Medical records would no doubt elaborate upon the knowledge that she had, but were not a prerequisite to time commencing to run.
30. I would therefore allow the defendants’ cross appeal, and would dismiss the plaintiff’s claim also on the ground that the statutory limitation period had passed by the date of commencement of these proceedings.
McGee v Alcorn
[2016] IEHC 59
Introduction
1. The issue in this case is whether or not the plaintiffs are entitled to recover damages from the second named defendant for economic loss in relation to a negligently constructed dwelling-house. The claim is in respect of the cost of works done to date and further works proposed to be carried out, including the cost of alternative accommodation during the proposed works. There is also a claim for damages for emotional suffering and distress.
2. The primary basis for the claim against this defendant, who is an architectural technician, is that he issued certificates stating that he had inspected the construction, that the foundations of the house were satisfactory, and that the ground conditions for the foundations were suitable. It is common case that the foundations were in fact unusually defective and that they were laid in unsuitable ground.
3. The defendant has admitted negligence on his part. However, he says that he has no liability for any loss suffered by the plaintiffs. This is based, firstly, on the argument that the cause of action pleaded against him is negligence, and that damages for pure economic loss cannot be recovered in a negligence action.
4. Secondly, he contends that in any event his relationship was with the first named defendant (the builder) and that he had no duty of care to the purchasers of the house.
5. Thirdly, issue is taken with the extent of the damages claimed, on the basis that the proposed works (as opposed to works already carried out) are necessary only from an aesthetic point of view and will entail a cost that is disproportionate to the value of the house.
Background facts
6. The plaintiffs are a married couple with three young children. They lived abroad for some years and moved to County Donegal in 2008. The first named plaintiff is a self-employed mechanical engineer. His family are from the area and his parents owned a company which had initially engaged in construction but had come to specialise in monumental headstones. The plaintiffs took over as directors of this company at some stage after coming to live in the county. The second named plaintiff is a teacher.
7. The first named defendant is a builder. By contract dated the 8th July, 2008, the plaintiffs purchased a new house that he had built. (This defendant has left the jurisdiction and judgment in default has been marked against him.) The purchase price was €430,000.
8. The house is sizable, being some 16.3 metres in length. A conservatory on the western end brings the total length to 21 metres. It is clear that the plaintiffs have taken great care in its upkeep, and that both the house and garden are extremely well maintained.
9. Although impressive in appearance, the house was built upon a bizarrely defective foundation. For some reason, the first named defendant constructed the foundation in the shape of a rough V, tapering to a point at the bottom. Two bow windows at the front of the house were not supported at all and simply rested on the ground.
10. To compound the problem, the soil in which the foundations were laid was not suitable, being in part “made up” or “filled” ground.
11. The second named defendant is the holder of a technician’s certificate in architecture. On the 9th April, 2008, he issued two certificates. One is headed “Certificate of Supervision”. In this document he confirmed that he had been employed in the erection of the house during the various stages of construction, and that he had inspected the progress of the work at various stages including the opening and pouring of foundations. He certified that:
“… the foundations were satisfactory at the time of pouring and that the ground conditions were suitable for the laying of such foundations in respect of the property.”
12. He also certified that good building materials and workmanship had been used throughout and that the property was structurally sound and in accordance with good practice. He attached a copy of his professional insurance indemnity.
13. The second certificate is headed “Certificate of Compliance”. In this document the second named defendant confirmed that he had been retained by the first named defendant to inspect the house. He stated that in his opinion the construction of the house complied substantially with all of the applicable Building Regulations.
14. Over the course of 2009 cracks began to appear in the house. These became more serious, and ultimately substantial works were carried out in 2012 (for a cost that is agreed at €129,000) to underpin the foundations. The house is now completely structurally sound and safe. However, it has been left with a permanent tilt. The plaintiffs wish to remedy this by further extensive works which will cost in the region of €277,000. They say that this is required to make the house “ right ”, in terms of what they bought.
15. The case as pleaded against this defendant claims damages for negligence, breach of duty and breach of statutory duty. The statement of claim alleges in paragraph 2 that he was at all times the supervising architect in relation to the property, and that he provided both a certificate that the relevant works were carried out in accordance with the Building Regulations made pursuant to statute and a certificate that the foundations were satisfactory.
16. The particulars pleaded are as follows:
“(a) Failing to superintend the construction of the said works properly or at all.
(b) Failing to take any or any adequate steps to ensure that the said building work would comply with Building Regulations and ensuring that the building was in compliance with the said regulations.
(c) Failing to adequately and/or appropriately inspect the building and the works as carried out.
(d) Failing to provide adequate and appropriate plans specific to the requirements of the construction of the said dwelling house.
(e) Failing to ascertain the remedy to the problems that had arisen in the said dwelling house.
(f) Failing to heed or observe the defects or faults hereinbefore referred to.
(g) Failing to instruct the first named defendant to remove or remedy the said defects or faults.
(h) Failing to give any or any adequate instruction for opening up for inspection any of the said works.
(i) Approving the said works, including the said defects and faults.
(j) Acting or omitting as aforesaid, issued the final certificate and when they knew or ought to have known of the said defects or faults.
(k) Failing adequately to detail or design the said works.
(l) Certifying the said works when not correct and in particular certifying that the foundations were satisfactory at the time of pouring and that the ground conditions were suitable for the laying of such foundations in respect of the property.”
17. A notice for particulars from the solicitors for the second named defendant requested, inter alia, clarification as to whether the plaintiffs were claiming that they were owed a duty of care by that defendant with regard to the construction of the property; particularisation of the matters relied upon in support of the pleading that he owed them a duty of care; and clarification as to the basis upon which the plaintiffs were relying on the two certificates issued by him. The response to these queries was that, as this was a new build, the plaintiffs had relied upon the certificates as provided by the second named defendant.
18. In his defence, the second named defendant pleaded, inter alia, that the statement of claim disclosed no valid or sustainable cause of action against him; that he was a stranger to the contract of sale; that the plaintiffs were not entitled to rely upon his certificates and that he had no liability to them in respect of the alleged defects. He denied that he owed them a duty of care, that he was guilty of the alleged negligence, and that he had caused the alleged damage.
19. Prior to the hearing of the case, however, the second named defendant admitted negligence on his part but otherwise placed the plaintiffs on proof of their claim and of their entitlement to recover damages as against him for the economic loss suffered by them.
20. The defendant has not given evidence as to the extent of his supervision or other involvement in the construction of the house. The only evidence on this issue, therefore, is the fact that he issued the certificates.
21. The necessity for the underpinning works that have been carried out is not in dispute and the defendant has agreed the figures for the cost of that work (without prejudice to his denial of liability). However he disputes the necessity for the proposed works. He asserts that the tilt could have been corrected at the same time as the underpinning works, at only marginally greater expense. He also argues that the tilt is merely a cosmetic defect, and insignificant even in that context. It is contended that the proposed expenditure is out of all proportion to the value of the house.
The damage to the house
22. Cracks began to appear in the walls of the house in the course of 2009. Gaps also began to appear in the floor. The plaintiffs contacted the first named defendant but ultimately no help was forthcoming from that quarter. Eventually they engaged Mr. Francis Harvey, who is a qualified engineer with his own practice and a member of the Association of Consulting Engineers. With his assistance it was eventually established that the problem was caused by the foundations of the house.
23. Mr. Harvey carried out a full inspection of the house on the 27th April, 2011. He observed a large crack between the floor of the main kitchen/dining area and the floor of the conservatory, which he measured with callipers. There was also a large crack extending diagonally and vertically above the back door. He fitted a “tell-tale” on this.
24. On a follow-up inspection on the 14th September, 2011, it was noted that the crack in the floor had widened by 4mm and the crack over the door had opened up a further 1mm.
25. On the 16th September, 2011, levels were taken of the floors throughout the ground floor level. It was noted that there was a cross fall of 90mm from the right hand side of the house to the left hand gable.
26. Trial holes were dug around the outside of the house in February, 2012. It was found that the ground along the left hand side of the house was “made up” or “filled” ground. It was evident that the site had been levelled out many years before the work in relation to the foundations had begun. Filling had been placed on top of the sod, under which there was a peat layer and a layer of blue till. Mr. Harvey said that it was never good practice to build on filled or made up ground.
27. Mr. Harvey described the foundations as tapering to a point at the bottom. He said that this was “most unusual”, and something that he had never come across before. One would only put a point on something if one wanted it to drive it into the ground, whereas the purpose of foundations is to spread a load. The thickness of the foundations varied, and the outer face was extremely curved.
28. It was discovered that the blockwork for the two bay windows at the front of the house had simply been built on hardcore with no foundations at all.
29. Asked whether the house would have collapsed in the absence of remedial works, Mr. Harvey said that he did not know if it would have collapsed but there was evidence of movement and it would certainly have continued to tilt to “ an intolerable degree ”.
30. Mr. Harvey said that he had considered other options to arrest the movement, apart from underpinning. Piling would not have worked because it requires a vertical, rather than curved, face on the foundation, in order to insert tie bars to fasten the foundations to the piles. It was also uncertain whether there was any reinforcing in the foundations, such that one could risk piling. His view was that it was an “ incredibly poor ” foundation and that the standard of workmanship was “ pathetically bad ”.
31. He says that he also considered jacking the house. However, this technique requires a solid foundation, or, as he described it, “ a decent solid plate ” to push against so that the house would lift as a unit. In this case, the foundations were sitting on top of made-up ground, which was on top of sod, which was on top of peat. There was no consistency in the foundation and part of the blockwork (under the bay windows) had been built on grass. If one were to attempt to jack up one corner it was most likely that that corner would lift and break off. He therefore did not ask the contractors who did the underpinning to consider jacking.
The remedial works
32. The works have been dealt with in evidence and in submissions under the headings “Phase 1”, “Phase 2” and Phase 3”.
Phase 1
33. These works have already been carried out and, as noted, the cost has been agreed at €129,000.
34. In April, 2012 Mr. Harvey and the plaintiffs met with Sub-Tech Contracts, a company based in London which specialises in underpinning. It was agreed that having regard to the findings from the trial holes, piling would not be a suitable solution, and that underpinning down to a hard stratum would be necessary. The works began in early July.
35. There was groundwater running from the right hand side and rear of the house, under the foundation, and it was necessary to dig drainage trenches around the house and to install gabion baskets prior to the underpinning. Apart from the excavations, the garden was used throughout the period of the works for the deposit of excavated soil and hardcore. The kerbs were damaged by the heavy vehicles and machinery required for the works.
36. The underpinning necessitated excavations of vertical shafts down the outside of the foundation, to varying depths, until a hard base was found. These shafts had to be supported and cased in timber. At a depth of about 5 metres horizontal tunnels of about a metre in length were dug in under the house and then vertical filled concrete columns were put in and packed tight under the existing foundation.
37. In order to underpin the two internal walls it was necessary to excavate a tunnel from the front to the back of the house for the insertion of pillars.
38. Mr. Harvey said that the underpinning was highly skilled and very good quality work. It is his opinion that the house is now “ very well stabilised ” and it will not move any more. However, he says that he was at all times aware of the cross fall in the house, and that the underpinning would not rectify this.
39. It is relevant to note that in early August, 2012 the site was attended by Mr. Rory McLaughlin, a consulting engineer retained by the second named defendant’s insurance company. At his request a trial hole was excavated at the left hand side of the house to a depth of 5 metres. Mr. McLaughlin thus had an opportunity to observe the soil conditions and the nature of the foundations. He does not appear to have made any suggestion that the works were not necessary, or should be done differently.
40. According to the plaintiffs, they were refused a bank loan to pay for the work and used all of their own savings and their children’s savings accounts, along with assistance from family and friends, to pay for it. Health insurance was cancelled. They used the resources of the family business where possible.
41. While the family did not move out during the works, it is clear that their lives were very much disrupted during the relevant period. The work was obviously intensive, noisy and messy. The large holes created a risk in relation to the plaintiffs’ small children.
Phase 2
42. The figures for this phase are not agreed. It relates to redecorating the house and reinstating the garden after the Phase 1 works were completed. According to the plaintiffs every room had at least hairline cracks by the end of Phase 1. Cracks were plastered over, but the walls were not fully replastered. Electrical and plumbing works were completed.
43. The outdoor work was done in 2014. It involved the re-concreting of the rear area, removal and replacement of old kerbs and steps broken by lorries and machinery during the course of the works, and the levelling and re-sowing of the lawn. Much of this work was carried out by the family business with the assistance of sub-contractors. Photographs taken during Phase 1 and after Phase 2 demonstrate that a complete mess has been transformed into an impressive area.
44. The plaintiffs’ claim in respect of Phase 2 is for €38,525 including VAT. The first named plaintiff has said in evidence that the rates charged by the family company were much less than standard commercial rates, and that he was able to obtain materials directly from manufacturers at a cost lower than retail prices. Invoices have been furnished.
45. The second named defendant argues for a figure in the region of €26,000 for these works.
Phase 3 – the tilt and the chimneys
46. The proposed works involve the removal of the roof, windows and doors; the insertion of new windowsills and lintels; the raising of the floors, necessitating the removal of the pipes underneath; the stripping out of the kitchen and utility units; the taking down of the chimneys to ground level; the replacement of all plasterwork and the installation of new plumbing and electrics.
47. The defendant says that this in effect amounts to the demolition of a “ perfectly fine ”, structurally sound house and the building of a new one.
48. Mr. Harvey was asked to inspect the house again in January, 2015 in relation to the tilt. He had previously, as noted above, found a cross fall of 90mm (just under four inches) across the length of the house. On this occasion he engaged a firm to make digital measurements, which confirmed his view that there was a cross fall through the house.
49. Mr. Harvey says that as a result of the floor not being horizontal, the walls are not vertical and the roof is tilted. The windows and doors are also affected. The plaintiffs say that there is a problem with all of the internal doors. They have rehung them and adjusted the hinges but when partly open they will all drift open to the left. The plaintiffs have to use door-stops and they find that annoying.
50. Mr. Harvey said that, as an engineer who carries out structural surveys for potential house purchasers, the tilt would cause him to want to know what work had been done to arrest the movement of the house. An engineer who had not observed the work done, as he had, might not be as convinced as he was about the success of the work.
51. Asked about the cost of the proposed works, Mr. Harvey said that a lot of it was caused by the “ knock on ” effect of doing particular work. To create a uniform, level floor throughout the house would require the removal of the heating pipes and other services underneath the screed. To reconnect them would require new plumbing. Straightening the walls, similarly, would mean moving the sockets. This would affect the wiring and the existing wiring would probably not reach the new sockets.
52. While there is no necessity to have ceilings at the same level in each room, Mr. Harvey considers that a sloping ceiling in a room is noticeable.
53. The proposed solution for the leaning gable walls – to build tapering walls tight up against them – was, in Mr. Harvey’s view, much less drastic than demolishing and rebuilding them.
54. Mr. Harvey is at pains to stress that the necessity for the proposed works is “ very much from an aesthetic point of view ”, and to make the house “ right ” from a human point of view. There is nothing structurally wrong with the house.
55. The plaintiff’s quantity surveyor, Mr. Clarke, has costed the proposed works at €277,060.99 including VAT. He says that it would cost considerably more to demolish and rebuild. The estimates are based on re-using, as far as possible, existing timbers and roof-slates.
56. The defendant’s engineer, Mr. Ian Duckenfield, is a structural engineer with a particular interest in building failure. He inspected the premises in April, 2015 and found it to be “ a perfectly serviceable, fine house ”. He agreed with Mr. Harvey that there was nothing structurally wrong with the house as it currently stands.
57. He said that he had gone to the house expecting to see serious problems but that with one possible exception there was nothing visible. The exception was that, looking at the house with the garage in the background, one could see that by comparison with the garage, the house wall was out of plumb.
58. Based on the dimensions of the house, he calculated the average cross fall as being 4mm per metre, or 0.4%. He said that this was “ sensibly undetectable ”. However, he said, this was an average. The west (right hand) part of the house was essentially flat, while the worst area was the hallway. In this area, by getting down on his hands and knees, he could certainly see a cross fall. In contrast, the cross fall in the kitchen and dining area was only 10mm.
59. The eastern (or left-hand) gable wall was described by Mr. Duckenfield as “ a bit of a contradiction ”, in that parts of it were definitely out of plumb, parts were “ spot on ” plumb and parts were very slightly out of plumb. There are allowable tolerances for masonry to be out of plumb and a wall of this sort could have 15 mm and still be regarded as perfectly adequate. He would argue that 70 mm in a wall buttressed by other external and internal walls and chimneys was not a structural issue. There was, he said, no such thing as a perfectly vertical wall.
60. Mr. Duckenfield said that the slope in the roof was not discernible without a spirit level.
61. Mr. Duckenfield characterised the issues with the house as cosmetic, and very minor, rather than structural. They did not justify the proposed expenditure.
62. Mr. Duckenfield is of the view that jacking works could have been carried out while the underpinning was being done. He describes this procedure as being not common, but recognised. In this context, it would have involved stopping the underpinning concrete pillars short of the existing foundation and then the insertion of a hydraulic jack between the pillars and the foundation. The problem identified by Mr. Harvey, that there was nothing to “ jack against ”, did not arise since the pillars were built on good ground. Next, holes would be drilled in the floor slab and a geopolymer injected under pressure. This would expand, and as it expanded it would raise the floor. Jacks would also be used to raise the walls. A number of jacks would be needed, at about two metres apart, operated by a specialist crew of about half a dozen.
63. Mr. Duckenfield accepted that the process he described required that both the underside of the foundation and the top of the underpinning concrete be sound and level.
64. Asked what additional cost this might have involved, Mr. Duckenfield said that costs were not his area of expertise but he believed that it would have been in the order of €15,000.
65. It was put to him that Mr. Harvey had to make a judgement call in 2012, and that it was not unreasonable for the plaintiffs to follow the course of action he proposed. He agreed, saying that Mr. Harvey had found that the house was continuing to settle and had arrested that movement and also the possibility of structural instability.
Phase 3 – the chimneys
66. The plaintiffs’ evidence is that there is an issue with the chimney in the conservatory. Sand is falling down into the fireplace, indicating that there is cracking in the flue-liner.
67. Mr. Harvey said that it is not possible to put in new flue-liners without opening up the chimney breast. The best way of doing that, in his view, is to take it down and reconstruct it.
68. Mr. Clarke included €9,240 for the chimneys in his overall estimate for Phase 3. He said that doing them on their own, without the other works, would cost €2,000 to €5,000 more.
69. Mr. Duckenfield says that it is not necessary to take the chimney down in order to replace the flues.
Diminution in value
70. The plaintiffs’ valuer says that this house, in this location, could have been expected to fetch in the order of €285,000 if it did not have the history that it has. He says that, however, the appearance of the repaired plaster work may give the impression that structural problems are being covered up. In addition, most people in the area would know that there was a history with the house and he believed that there was a stigma attached to it. It was, otherwise, a fine house and a professional survey would demonstrate that it was structurally sound.
71. He refers to what he describes as “ niggly ” things, like doors closing over or the shower door sliding closed on its own.
72. Because of the problems that the house has had, he estimates that its value has fallen by 35 to 50%. Asked if he meant by that a figure between €155,000 and €185,000, he agreed.
73. The defendant’s valuer agrees with the figure of €285,000 in the “ no problem ” scenario, and accepts that there may be some diminution of value. However he considers this to be a fine, substantial house. He considers that a discount in the region of 10 to 15% would be reasonably acceptable.
74. It should be noted that the plaintiffs are very happy with the location of their home and have no wish to move.
Submissions
75. Mr. Connolly SC submits that the works that have already been carried out were necessary for health and safety reasons. The proposed works are intended to put the plaintiffs in the position of having a house without defects, as they should have had from the start.
76. It is submitted that the Irish case-law on the issue of pure economic loss arising from negligently constructed buildings is clear, and is governed by Ward v. McMaster & Ors. [1985] 1 I.R. 29 (High Court) and [1988] I.R. 337 (Supreme Court). According to the judgment of Costello J. in the High Court, damages for a defective building are recoverable for all aspects of loss including the cost of making good structural defects. It is submitted that the Supreme Court decision in that case left in place the High Court ruling on this issue.
77. It is accepted that in Glencar Explorations p.l.c v. Mayo County Council (No.2) [2002] 1 I.R. 84 and in Beatty v. The Rent Tribunal [2006] 2 I.R. 191 some doubts were expressed about the correctness of Ward v. McMaster, but Mr. Connolly argues that the observations in those cases were obiter and that Ward v. McMaster has not been overturned.
78. It is submitted that in the instant case there was undoubted proximity, given that the certificate supplied by the defendant was supplied to the plaintiffs in the knowledge that it was to be relied upon. The ensuing damage was foreseeable. It is just and reasonable that the plaintiffs should be compensated for the loss arising from defects that should have been uncovered by the defendant.
79. Reference is made to Leahy v. Rawson [2004] 3 I.R. 1 where damages were awarded against a surveyor in respect of all works, not simply those that could be described as structural. Similarly, in McShane Wholesale Fruit & Vegetables Limited v. Johnston Haulage Company Limited & anor. [1997] 1 I.L.R.M. 86, damages were recovered under all headings. In that case Flood J. expressly declined to follow the ruling in Colgan v. Connolly Construction Co (Ireland) Ltd. [1980] I.L.R.M. 33 to the effect that loss was recoverable only in respect of structural works necessary to avoid personal injury.
80. As an alternative, it is submitted that the Court should approach the case, not on the basis that pure economic loss is recoverable for some torts but not others, but seeing the test as being proximity. It is argued that this is the predominant theme in the English authorities and is not inconsistent with either Glencar or Ward. Keane J. had accepted in Glencar that pure economic loss was recoverable in cases of negligent misstatement. That, it is argued, is a sub-set of negligence. Although the plaintiffs’ case is pleaded in negligence, it is based upon a negligent examination and an untrue representation of the facts in the completed certificate. The representation was intended to be relied upon by the first time purchasers of the house, giving rise to a close proximity and a duty of care. The damage suffered by the plaintiffs was foreseeable, and there are no public policy considerations which could be relied upon to exempt the defendant from liability for the full extent of the losses incurred.
81. On behalf of the defendant, Mr. Marray BL submits that the nature of the loss in respect of which the plaintiffs seek to recover is pure economic loss, in that the case is about a purely qualitative defect rather than a defect causing personal injury or damage to other property. He argues that the law on the issue has been clear since Glencar – such damages are not recoverable in a negligence action. It is submitted that the analysis of Keane C.J. in that case was not obiter, that Geoghegan J. was incorrect in so describing it in Beatty, and that in Wildgust v. Bank of Ireland [2006] 1 I.R. 570 Kearns J. appears to refer to it as being the law. Irish law thus, it is contended, makes a distinction between a claim for damages for pure economic loss in negligence, which must fail, and a claim in negligent misstatement, which may succeed if the criteria are met.
82. It is submitted that the plaintiffs have not made a claim for negligent misstatement, and that in any event there is not the required degree of proximity between the parties to form the basis for such a claim. The defendant had no contract of any kind with the plaintiffs. The certificate was supplied to the vendor, not to the purchasers. The purchasers could rely upon it as against the vendor, but not as against the person giving the certificate unless the criteria for negligent misstatement were fulfilled. In the instant case there was no contract between the parties, no advice given by the defendant to the plaintiffs and no representation made by him to them. A negligent misstatement cannot be made to the world – there must be a duty of care.
83. Turning to the specifics of the works done or proposed to be done, Mr. Marray has agreed the figures for Phase 1 but not Phase 2. The proposed works in Phase 3 would, he says, involve undoing nearly all of the previous work, are essentially aesthetic rather than structurally necessary and would involve a cost that is disproportionate to the value of the house. An award of damages must be reasonable and must have regard to the principle of mitigation of loss. The evidence establishes that the house could be sold in its current condition.
The authorities
Ward v. McMaster & Ors. [1985] 1 I.R. 29 (HC) [1988] I.R. 337 (SC)
84. The first named defendant was a builder who built a house for his own occupation. Some years later it was purchased by the plaintiffs. In order to make the purchase they applied for a loan to the second named defendant, the local authority, pursuant to the provisions of the Housing Act 1966. That body was obliged by statute to satisfy itself as to the value of the house and for that purpose it retained the third named defendant, who was an auctioneer. The person who inspected the house was therefore a valuer, rather than a person with any qualification in construction. He found no defects and reported that it was in good repair.
85. Problems soon arose and an engineer engaged by the plaintiffs reported that the house was structurally unsound, a source of danger and a risk to health.
86. In the High Court, Costello J. described the issues as being:
• Whether the builder owed the plaintiffs a duty of care as builder and vendor;
• Whether the local authority owed a duty of care in exercising its statutory functions in granting the loan; and
• Whether the auctioneers owed a duty of care in carrying out the valuation.
87. Costello J. noted that the abolition in England of the longstanding principle that builders were not liable in tort in relation to defective buildings had been “ copperfastened ” by the House of Lords in Anns v Merton London Borough [1978] A.C. 728. That decision had rejected the proposition that Donoghue v Stevenson [1932] A.C. 562 did not apply to realty. He cited the judgment of Lord Wilberforce in Anns, and in particular the following passage:
“The position has now been reached that in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter – in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any 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 or the damages to which a breach of it may give rise.”
88. Costello J. also referred to Siney v. Dublin Corporation [1980] I.R. 400 as having significantly developed the law in this jurisdiction in applying Donoghue v Stevenson to the exercise by a local authority of powers of inspection of properties provided, although not built, by it. He considered that although Siney was concerned with a duty of care relating to an inspection carried out under statutory powers, rather than a common law duty of care of a builder, it provided very strong support for the then current English approach. He was satisfied, both in principle and on authority, that a builder owed a duty of care to the person to whom he might subsequently sell the house, based on the neighbour principle in Donoghue v. Stevenson.
89. In considering the scope of that duty, Costello J. referred to Junior Books v. Veitchi [1982] 3 W.L.R. 477, where a sub-contractor had been held liable for economic loss in respect of a negligently constructed factory floor. The majority of the House of Lords had seen this as a natural result of the reformulation of the Donoghue v. Stevenson principle in Anns v. Merton London Borough.
90. In Junior Books the House of Lords rejected the proposition that the subcontractors’ duty was limited to a duty to avoid causing foreseeable harm to persons or property (other than the subject matter of the work). Applying the Anns principles, it was held that the subcontractors must be taken to have known that if they did the work negligently the resulting defects would at some time require the owners of the property to expend money on remedial measures.
91. Costello J. said that he found the reasoning in Junior Books to be persuasive and that he had no difficulty in applying it.
“It follows from it that the concept of reasonable foresight is one to be employed not only in deciding in a given case whether a duty of care exists, but also can be employed in determining its scope. Applying this concept to the present case it seems to me that the duty of care which the defendant owed to a purchaser of the bungalow which he built was one relating to hidden defects not discoverable by the kind of examination which he could reasonably expect his purchaser to make before occupying the house. But the duty was not limited to avoiding foreseeable harm to persons or property other than the bungalow itself (that is a duty to avoid dangerous hidden defects in the bungalow) but extended to a duty to avoid causing the purchaser consequential financial loss arising from hidden defects in the bungalow itself, (that is a duty to avoid defects in the quality of the work). It also seems to me that the defendant should have foreseen that if he caused the bungalow to be so badly constructed as to force the plaintiffs to leave it that this would cause them both inconvenience and discomfort, and so he owed a duty to the plaintiffs not to cause hidden defects which would result in such inconvenience.”
92. Costello J. then went on to consider the liability of the local authority. He held that there was a sufficient relationship of proximity or neighbourhood between the parties such that in the reasonable contemplation of the Council, carelessness on their part in valuing the bungalow might be likely to cause the plaintiff damage. Given his lack of means, and his knowledge that they were going to value it, they should have been aware that it was unlikely that he would himself employ a professional person to examine it. That gave rise to a prima facie duty of care and there was nothing in the dealings between the parties to restrict or limit that duty. Having regard to the purpose of the statutory powers being exercised, it was consistent with those powers that they should be accompanied by a private law duty of care. It was also just and reasonable to hold that a duty of care arose. The plaintiff was relying on the Council’s valuation and they should have been aware that he was doing so.
93. The scope of the Council’s duty was, he considered, governed by foreseeability and reasonableness. The duty was to ensure that the person carrying out the valuation was competent to discover reasonably ascertainable defects which would materially affect its market value.
94. The claim as against the third named defendant was dismissed. He had been employed in his capacity as an auctioneer, and the standard of care required of him was that of an ordinary skilled auctioneer. The plaintiffs had failed to establish that, in that capacity, he should have discovered the hidden defects.
95. Only the local authority appealed. It appears from the report of the Supreme Court decision that the grounds of appeal were limited to the existence of a duty of care, the issue of foreseeability and the argument that a decision not to engage engineers for the purpose of inspection was a policy matter within the discretion of the Council. The issue of damages was left over, and was subsequently settled without a hearing.
96. Henchy J. found it unnecessary to analyse the “ different and not always reconcilable approaches ” adopted in the authorities cited to the Court, considering that it was possible to decide the case on “ well-established ” principles. The fact that the Council was in breach of its statutory duty to ensure that the house was a good security for the loan would not in itself be sufficient to give a cause of action to the plaintiff, but the statutory duty in respect of the provision of housing in its area created a special relationship between the parties. The plaintiff could only qualify for the loan by showing that he would otherwise, by reason of financial need, have to be rehoused by the Council. He could not, therefore, be expected to be able to afford to engage a surveyor. Henchy J. therefore found that the Council should, in the circumstances, have foreseen that the plaintiff would rely on the inspection by its valuer and that it owed him a duty to ensure by a proper valuation that the house would be a good security for the loan.
“It would be unconscionable and unfair if they were to be allowed to escape liability in negligence on the ground that the plaintiff himself should have taken the necessary steps to ascertain that the house was sound. In the light of the statutory rights and duties of the Council it must, in my view, be held that they owed a duty to the plaintiff to observe due care in the valuation of the house and that they failed to carry out that duty.”
97. McCarthy J. accepted that Anns was the “ high water mark ” of the application of Donoghue v. Stevenson but said that he would not seek to dilute the passage quoted by Costello J. He did not find the criticisms voiced in Sutherland Shire Council v. Heyman (1985) 59 A.L.J.R. 564 or Yuen Kun Yeu v. A.G. of Hong Kong [1987] 3 W.L.R. 776 to be convincing. At p. 349 he said:
“Whilst Costello J. essentially rested his conclusion on the “fair and reasonable” test, I prefer to express the duty as arising from the proximity of the parties, the foreseeability of the damage, and the absence of any compelling exemption based upon public policy. I do not, in any fashion, seek to exclude the latter consideration, although I confess that such a consideration must be a very powerful one if it is to be used to deny an injured party his right to redress at the expense of the person or body that injured him.”
98. McCarthy J. found the existence of a duty of care arising from the proximity of the parties as intended mortgagors and mortgagees.
“It is a simple application of the principle in Donoghue v. Stevenson [1932] A.C. 562 confirmed in Anns v. Merton London Borough [1978] A.C. 728 and implicit in Siney v. Corporation of Dublin [1980] I.R. 400 that the relationship between the first plaintiff and the County Council created a duty to take reasonable care arising from the public duty of the County Council under the statute. The statute did not create a private duty but such arose from the relationship between the parties.”
99. He also found that it was foreseeable that the plaintiff would rely on the Council’s inspection.
100. These two considerations were both involved in the first leg of the Anns principle, and it had not been argued that there were considerations which ought to negative, reduce or limit either the scope of the duty, the class of persons to whom it was owed or the damages to which a breach might give rise, within the second leg.
101. Finlay C.J. and Griffin J. agreed with both judgments. Walsh J. expressed agreement with the judgment of McCarthy J. only.
Glencar Explorations p.l.c. v. Mayo County Council [2002] 1 I.R. 84
102. The decision in Glencar was concerned with a claim for damages in respect of a mining ban incorporated by the respondent local authority into its development plan. The ban was quashed in judicial review proceedings, having been found by the High Court to have been ultra vires. In pursuing the damages aspect the applicants claimed that its adoption entailed negligence, amongst other legal wrongs. In the High Court Kelly J. accepted that the Council had acted negligently, in that it had acted as no reasonable local authority would have acted, but held that there had been no duty of care extant between the parties.
103. On appeal, the Supreme Court agreed that the respondent did not owe a duty of care. The basis for this was the fact that, in adopting the development plan, it was exercising powers for the benefit of the community as a whole and not for the benefit of a defined category of persons to which the applicants belonged. There was therefore no relationship of proximity between the applicants and the respondent that would render it just to impose liability.
104. The applicants had relied upon Donoghue v. Stevenson, Anns, Siney and Ward v. McMaster in relation to the negligence issue, and Keane C.J. gave detailed consideration to those judgments in determining the question of the existence of the duty of care.
105. He began by observing that in the introductory part of the passage in Donoghue v Stevenson dealing with the “neighbour principle”, Lord Atkin envisaged that while the law of negligence involved some general conception of relations giving rise to a duty of care, it necessarily embodied rules of law which limit the range of complainants and the extent of their remedy. He had then gone on to clarify that “ proximity ” did not mean only “ mere physical proximity ” but extended
“to such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act.”
106. This was described by Keane C.J. as an “ essential ” clarification given that what was under consideration was the duty of manufacturers to the ultimate purchaser, with whom they had no contractual relationship.
107. He also noted that Lord Atkin had cited with approval a passage from Le Lievre v. Gould [1893] 1 Q.B. 491, where the duty had been said to be:
“not to do that which may cause a personal injury to that other, or may injure his property.”
108. It had been, therefore, a feature of the law of negligence that it did not afford redress to those who had suffered “economic loss” simpliciter. However, a major qualification of that principle had been established in Hedley Byrne & Co. Ltd. v. Heller and Panners Ltd [1964] A.C. 465, which involved pecuniary loss caused by a negligent misstatement.
109. Having referred to Anns, Keane C.J. referred to subsequent expressions of doubt as to the two stage formulation adopted by Lord Wilberforce (in Peabody Donation Fund (Governors of) v. Sir Lindsay Parkinson & Co. Ltd [1985] A.C. 210, Yuen Kun Yeu v. A.G. of Hong Kong and Sutherland Shire Council v. Heyman) and to the ultimate change in approach in Caparo v Dickman [1990] 2 A. C. 605, where Lord Bridge said:
“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..”
110. Keane C.J. then turned to Ward v. McMaster. At p. 138 he said:
“While the decision in Ward v. McMaster [1988] I.R. 337 has been treated by some as an unqualified endorsement by this court of the two stage test adopted by Lord Wilberforce in Anns v. Merton London Borough [1978] A.C. 728, it is by no means clear that this is so. As already noted, Henchy J. was satisfied that the case could be decided by reference to “well established principles” and made no reference in his judgment to the two stage test in Anns v. Merton London Borough. Since Finlay C.J. and Griffin J. expressed their agreement with both the judgments of Henchy J. and McCarthy J., it is not clear that the observations of the latter in relation to the two stage test in Anns necessarily formed part of the ratio of the decision. Given the far reaching implications of adopting in this jurisdiction a principle of liability in negligence from which there has been such powerful dissent in other common law jurisdictions, I would not be prepared to hold that further consideration of the underlying principles is foreclosed by the dicta of McCarthy J. in Ward v. McMaster.”
111. He continued at p. 139:
“There is, in my view, no reason why courts determining whether a duty of care arises should consider themselves obliged to hold that it does in every case where injury or damage to property was reasonably foreseeable and the notoriously difficult and elusive test of “proximity” or “neighbourhood” can be said to have been met, unless very powerful public policy considerations dictate otherwise. It seems to me that no injustice will be done if they are required to take the further step of considering whether, in all the circumstances, it is just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the plaintiff, as held by Costello J. at first instance in Ward v. McMaster [1985] I.R. 29, by Brennan J. in Sutherland Shire Council v. Heyman (1985) 157 C.L.R. 424 and by the House of Lords in Caparo plc. v. Dickman [1990] 2 A.C. 605. As Brennan J. pointed out, there is a significant risk that any other approach will result in what he called a “massive extension of a prima facie duty of care restrained only by undefinable considerations …”
I observe, in this context, that it has been suggested in England that the difference in approach between Anns v. Merton London Borough [1978] A.C. 728 and Caparo plc. v. Dickman [1990] 2 A.C. 605 may ultimately be of no great significance, since the considerations which, in a particular case, may negative the existence of a duty of care under the Anns formulation are consistent with an assessment as to whether it is just, fair and reasonable to impose such a duty in the particular circumstances: (see the comments of Lord Hoffman in Stovin v. Wise [1996] A.C. 923 at p. 949 ).”
112. Discussing the question of damages for economic loss, Keane C.J. noted that such damages were normally not recoverable in tort. He continued at p. 142:
“That does not mean that economic loss is always irrecoverable in actions in tort. As already noted, economic loss is recoverable in actions for negligent misstatement. In Siney v. Corporation of Dublin [1980] I.R. 400, economic loss was held to be recoverable in a case where the damages represented the cost of remedying defects in a building let by the local authority under their statutory powers. Such damages were also held to be recoverable in Ward v. McMaster [1985] I.R. 29; [1988] I.R. 337, the loss being represented by the cost of remedying defects for which the builder and the local authority were held to be responsible. In both cases, the loss was held to be recoverable following the approach adopted by the House of Lords in Anns v. Merton London Borough [1978] A.C. 728. While the same tribunal subsequently overruled its earlier conclusion to that effect in Murphy v. Brentwood District Council [1991] 1 A.C. 398, we were not invited in the present case to overrule our earlier decisions in Siney v. Corporation of Dublin and Ward v. McMaster. I would expressly reserve for another occasion the question as to whether economic loss is recoverable in actions for negligence other than actions for negligent misstatement and those falling within the categories identified in Siney v. Dublin Corporation and Ward v. McMaster and whether the decision of the House of Lords in Junior Books Ltd. v. Veitchi Co. Ltd. [1983] 1 A.C. 520 should be followed in this jurisdiction.”
113. The other members of the Court agreed with this judgment.
Leahy v. Rawson [2004] 3 I.R. 1
114. This case, as noted above, is relied upon by the plaintiffs in the instant case. It concerned a negligently constructed extension to a cottage, where the work was so badly done that the plaintiff ended up having to convert the garage into living quarters pending resolution of the matter. O’Sullivan J. found that a duty of care arose in a context where the engineers (who denied having supervisory responsibility) had at the request of the plaintiff inspected the work while it was in progress and had assured her that all was well.
115. In reaching this conclusion, O’Sullivan J. specifically followed the Glencar analysis rather than applying the Anns test endorsed by McCarthy J. in Ward v. McMaster.
Beatty v. The Rent Tribunal [2006] 2 I.R. 191
116. In this case, the owners of a rented dwelling succeeded in quashing a decision made in a rent review, on the basis of lack of fair procedures. They also claimed damages in negligence, in respect of loss of rental income. The respondent argued, inter alia, that it owed no duty in private law to the applicants and that pure economic loss was not recoverable in negligence.
117. The case turned largely upon the status in law of a body such as the Rent Tribunal and the legal nature of its decision-making process. However, the issue of negligence was also dealt with in the judgments.
118. Geoghegan J. found for the Tribunal on the basis of judicial immunity. He concluded by saying:
“I do not want to express any views on the principles of Irish law relating to recovery of damages for economic loss in a negligence action. I am satisfied that the law on this question has not been finally determined in Ireland notwithstanding some relevant obiter dicta of Keane C.J. in Glencar Explorations p.l.c. v. Mayo County Council. It is unnecessary too express any views on that question in this appeal…”
119. Fennelly J. described the underlying principles of negligence as being:
“1. That there is a relationship of such proximity between the parties such as to call for the exercise of care by one party towards the other;
2. That it is reasonably foreseeable that breach of the duty of care will occasion loss to the party to whom the duty is owed; and
3. That it is just and reasonable that the duty should be imposed.”
120. Fennelly J. observed that in Sunderland v. Louth County Council [1990] I.L.R.M. 658 the plaintiff had attempted to rely upon Siney and Ward v. McMaster to claim damages for loss alleged to have resulted from a grant of planning permission. The Supreme Court had held unanimously that those cases dealt with “ provision in a social context for those who are unable to provide for themselves ” and did not apply where a planning authority was acting in a “ watchdog ” role.
121. On the facts of the case, he found that the conditions of proximity and foreseeability had been established. However, it would not be just and reasonable to impose a duty of care. Firstly, he considered that it was not the sort of case where reliance on the behaviour of the other party, such as in Siney and Ward v. McMaster, would justify departure from the normal principle in respect of pure economic loss. Secondly, the availability of such a remedy might tend to compromise the independence of the Tribunal.
122. McCracken J. agreed that the “fair and reasonable” test was not satisfied.
Wildgust v. Bank of Ireland [2006] 1 I.R. 570
123. The issue in this appeal was the liability of an insurance company for an incorrect answer from the plaintiffs’ banker to an inquiry as to whether a premium for loan insurance had been paid. Informed that it had been paid, the bank did not feel it necessary to contact the plaintiffs. This occurred in a context where, apparently, it would have been normal for the bank to pay the premium itself rather than let the policy lapse. It later transpired that, as a result of an error, a payment made by the plaintiffs had not been correctly processed and the policy did lapse.
124. The plaintiffs’ case for damages for negligent misstatement was dismissed in the High Court on the basis that there had been no actual reliance by the plaintiffs on the incorrect statement, since they were unaware of it. However, it should be noted that in applying the test for the existence of a duty of care, Morris P. had ruled that the formulation set out by McCarthy J. in Ward v. McMaster was not, in the light of Glencar, to be seen as the full test, and that the Court must in addition ask itself whether it was just and reasonable that the law should impose a duty of a given scope on the defendant for the benefit of the plaintiff.
125. In allowing the appeal, the Supreme Court held that the proximity test applicable to negligent misstatement covered the facts of the case.
126. In considering whether actual reliance was an essential ingredient of the tort, Geoghegan J. referred to the practical reasons for the distinction that had developed, since Donoghue v. Stevenson, between negligence in act and negligence in statement.
“Pragmatically, some kind of control mechanism was necessary in relation to liability for negligent misstatement as otherwise an action might lie at the suit of large numbers of people influenced and reasonably foreseen to be influenced by the erroneous statement. By contrast, a negligent act will, for the most part, foreseeably damage only a small category of people.”
127. He noted that the more recent English caselaw (in particular, Caparo Industries plc v. Dickman) had introduced a third element into liability for negligence. In addition to reasonable foreseeability and proximity, there was now the question of reasonableness in the imposition of a duty of care. Geoghegan J. observed, without further discussion, that this principle had been endorsed, “albeit obiter”, by Keane C.J. in Glencar.
128. Having considered Hedley Byrne v. Heller & Partners and the subsequent authorities, in particular White v. Jones [1995] 2 A.C. 207, Geoghegan J. concluded that the defendant ought to have known that the information would be relied upon at least by the bank. If the statement made by it was incorrect, the policy could lapse to the detriment of both the bank and the plaintiffs, who had a beneficial interest in the form of an equity of redemption in the policy. There was, therefore, a special relationship between the plaintiffs and the defendant.
“Put shortly, the first plaintiff was a “neighbour” for the purposes of the law of negligence and a specially close one at that. There is no question here of the second defendant being liable to large numbers of perhaps unknown persons.”
129. Kearns J. noted that liability for negligence under the principles of Donoghue v Stevenson was confined to personal injury to, or damage to the property of, the plaintiff. Hedley Byrne had extended liability to include pecuniary loss caused by a negligent misstatement on a “ very specific basis ” – namely,
“[t]hat the law would imply a duty of care when a party seeking information from a party possessed of a special skill trusts him to exercise due care, and that party knew or ought to have known that reliance was being placed on his skill and judgment.”
130. Kearns J. then analysed the subsequent leading English authorities, including Caparo Industries p.l.c. v. Dickman. In that case, the House of Lords held that liability for economic loss due to negligent misstatement was confined to cases where the statement or advice had been given to a known recipient for a specific purpose of which the maker was aware and upon which the recipient had relied and acted to his detriment. Kearns J. noted the emphasis placed by Lord Bridge on the distinction between a duty to avoid causing injury to the person or to property, and the duty to avoid causing others to suffer purely economic loss.
131. The question whether the parameters of the duty had been extended significantly in this jurisdiction by Ward v. McMaster, having regard to the later decision in Glencar, was then considered. Having quoted the passages from pp. 138 and 139 of the judgment of Keane C.J. referred to above, Kearns J. said:
“56 This most authoritative recent statement of the law in relation to the general duty of care in negligence is in itself a powerful reason for holding that the test in Caparo Industries plc. v. Dickman [1990] 2 A.C. 605, if applicable, must apply with even greater force to cases of negligent misstatement and that Lord Bridge’s caveat at p. 621 that an essential ingredient of the “proximity” between the plaintiff and the defendant in such circumstances must at the very least involve proof ‘that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind and that the plaintiff would be very likely to rely on it for the purposes of deciding whether or not to enter upon that transaction or upon a transaction of that kind’.
57 This strikes me as a particularly appropriate restriction to apply to any duty of care arising in respect of negligent misstatement for all the reasons identified in the cases already considered and bearing in mind always the crucial distinction between words and statements on the one hand and deeds and conduct on the other. It seems obvious that this distinction is one which should not be elided. The question however is whether the principles in Caparo Industries plc. v. Dickman [1990] 2 A.C. 605, itself a case in negligent misstatement, should apply to cases of negligent misstatement in this jurisdiction, as distinct from cases of the general duty of care in negligence where application of those principles has been established by Glencar Explorations p.l.c. v. Mayo County Council (No.2) [2002] 1 I.R. 84.”
132. Kearns J. held that on the facts of the case, both the plaintiffs and their bank were “ neighbours ” of the defendant in the legal sense, to whom a legal duty was owed. He favoured an interpretation, “ or adaptation if needs be ” of the Hedley Byrne principles to include more than just the person to whom the negligent misstatement was addressed.
“The “proximity” test in respect of a negligent misstatement must go further than that and include persons in a limited and identifiable class when the maker of the statement can reasonably expect, in the context of a particular inquiry, that reliance will be placed thereon by such person or persons to act or not act in a particular manner in relation to that transaction.”
Discussion and conclusions
133. At the risk of over-simplifying complex issues, the situation appears to be as follows:
(i) In Ward v McMaster, Costello J. followed Siney and applied the two stage Anns test to find that a duty of care existed. He also applied Junior Books in finding a liability for economic loss caused by a breach of the duty. In the Supreme Court, McCarthy J. (with the agreement of Finlay C.J. and Walsh and Griffin JJ.) approved the Anns test, with the added observation that it would require “ powerful ” considerations based on public policy to deny an injured party his right to redress at the expense of the person or body that injured him.
Because of the procedural manner in which the appeal had been run, the Court did not consider the question of liability for economic loss.
(ii) In Glencar, the Supreme Court expressed disapproval of the Anns test and preferred an approach whereby, in considering the existence of a duty of care, the Court should ask whether it was “ fair, just and reasonable ” to impose such a duty rather than asking whether there were powerful considerations against imposing it.
The Court considered that it was possible that the judgment of Henchy J. in Ward v. McMaster, which was based on “ well-established ” principles, was the binding decision of the Court in that case, rather than the judgment of McCarthy J.
The Court also reiterated that the general principle was that damages could be awarded only in respect of personal injuries or damage to property (not being the property, the subject of the litigation). The Court acknowledged that negligent misstatement was an exception to this principle. It expressly reserved its position as to whether damages for economic loss were recoverable “other than actions for negligent misstatement and those falling within the categories identified in Siney v. Dublin Corporation and Ward v. McMaster”.
(iii) In Leahy v. Rawson O’Sullivan J. applied the Glencar analysis in finding that an engineer who assured the plaintiff that all was well with the building was under a duty of care.
134. Whether the analysis of Keane C.J. was, on the facts of the case in Glencar, simply obiter as Geoghegan J. said, or a “ most authoritative ” statement of the law, as Kearns J. described it, it is certainly incumbent on this Court to accord it full respect as a considered expression of the unanimous view of the Supreme Court. However, I think it important to note in the context of this case that it does not appear, in my view, to be authority for the proposition that the outcome in either Siney or Ward v. McMaster was incorrect.
135. On the facts of the instant case, I have no difficulty in finding the existence of a duty of care on either the approach of McCarthy J. or Keane C.J.
136. There was, in the first place, undoubtedly proximity between the plaintiffs and the second named defendant. In this respect I consider that the absence of a contractual relationship between the parties is immaterial. It is true to say that the certificates were supplied by the second named defendant to the builder, but the only conceivable purpose of them from the builder’s point of view was for presentation to a prospective buyer. The second named defendant must have been aware of this, and there must have been implicit knowledge and indeed an assumption that such a person would rely upon the certificates – that is the purpose for which they were issued. This is particularly so in the case of the representation that the foundations were properly constructed. Having regard to the evidence in this case as to how the problem was identified – by the digging of large test holes around the house – this is not a matter that can readily be assessed by a potential buyer. By the same token, it was eminently foreseeable by a person in the second named defendant’s position that if the foundations were in fact inadequate, there was likely to be loss occasioned to the buyer.
137. The alternative questions: “Is there any reason not to impose a duty of care in the circumstances?” and “Is it fair, just and reasonable to impose a duty of care in the circumstances?” both lead me, on the facts of the case, in the same direction. No argument has been made by the second named defendant that there are any policy considerations that would make the Court hesitate in finding that the duty exists. The class of persons to whom the duty is owed is easily defined – it is the purchaser to whom the certificate has been presented, since that is the person who will rely upon it. It is not necessary to go further in this case, and consider the possibility of open-ended liability to subsequent buyers years down the line.
138. I further consider that it is fair, just and reasonable to impose a duty of care towards purchasers on persons such as engineers and architects who provide certificates of this nature to builders. Most people buying a modern house, and most of the lenders to whom they will go for mortgages, will require such certificates and will rely upon them. Self-certification by a builder does not seem a realistic alternative. It is simply untenable to suggest that the person who holds himself out as professionally qualified to assess, and in a position to certify, the quality of the house and the workmanship of its construction, should not thereby be required to take care in giving such certification.
139. The question then arises as to the recoverability of damages. The defendant says none can be recovered, because the claim was made in negligence rather than negligent misstatement.
140. I note that in Glencar one issue dealt with in the judgment arose because the respondent had not specifically denied that it had a duty of care. The issue is discussed by Keane C.J. at pp.131 to 132, where he noted that the defence denied negligence and breach of duty. He stated that it was clearly implicit that the respondent was contending that it was under no duty of care, or that if it was, then it was not in breach. He continued:
“Apart from that consideration, whether a duty of care existed in the particular circumstances of this case was a matter of law and, on the orthodox view of the function of pleadings, the absence of a duty of care did not have to be expressly pleaded by the respondent. There is, of course, no question of the applicants having been taken in any way by surprise either in this court or in the High Court, having regard to the detailed written submissions furnished in both courts…”
141. I also note that at an earlier stage of the proceedings in Wildgust the plaintiffs had been directed by the High Court, and, on appeal, by the Supreme Court, to amend the statement of claim to include a specific plea of negligent misstatement – see Wildgust v. Bank of Ireland [2001] 1 I.L.R.M. 24. This issue arose when it became clear in the course of the High Court hearing that negligent misstatement was, in fact, the basis of the plaintiff’s case. The plaintiff argued that it was already sufficiently clear from the statement of claim, which set out details of the communications in question, the particulars, the defence (which denied having made the representation) and from counsel’s opening statement (which referred to “negligence in the misstatement”). The defendant contended that the plaintiff was obliged to plead that a statement had been made to the plaintiff by the defendant, that the defendant intended the plaintiff to rely upon it and that the plaintiff did rely upon it and acted to his detriment. The defendant claimed to have been prejudiced in its defence.
142. Giving the judgment of the Court, McGuinness J. held that the plaintiff had failed to set out the normal elements of a claim of negligent misstatement, and that the defendant was justified in arguing that parts of the pleadings relied upon appeared, rather, to concern an allegation of mala fides on the part of the defendant.
143. In the instant case, the plaintiffs plead in their statement of claim that the second named defendant was guilty of negligence and breach of duty. The particulars at (i), (j) and (l) assert that he approved the works, including the defects; that he issued the final certificate when he knew or ought to have known of the defects; and that he certified the works “ when not correct ”, in particular that the foundations were satisfactory and that the ground conditions were suitable. The notice for particulars asked for the basis of the claim that there was a duty of care, to which the response was that the plaintiffs had relied upon the certificates.
144. The second named defendant has admitted negligence, without prejudice to his denial of liability to the plaintiffs. That concession appears to have been made orally, and indeed was the cause of some confusion initially in that the plaintiffs’ representatives thought that there had been an admission of liability. According to the defendant’s written submissions,
“The second named defendant without prejudice to the Defence delivered in the proceedings admitted negligence on his part but otherwise placed the plaintiffs on proof of their claim and their entitlement to recover damages against the second named defendant for the economic loss suffered by the plaintiffs.”
145. The Court is not otherwise aware of the exact terms of the admission, and with hindsight it would have been preferable to have clarified it at the hearing. There is some difficulty in understanding how the admission could have been “ without prejudice to the defence ”, since the defence denied negligence. I think that the intention was that the admission should not prejudice the argument that this defendant was under no duty of care towards the plaintiffs, and was in any event not liable for economic loss suffered by them.
146. In the absence of any express limitation or exclusion the admission must, in my view, be held to relate to the claims of negligence made in the pleadings including the claims relating to the certificates. It is presumably on foot of the admission that the plaintiffs have not called expert evidence as to the standard of care expected of a professional providing certificates of this nature, but it has not been suggested by the defendant that the plaintiffs have not proved that the representation as to the adequacy of the foundations was made negligently. Further, it has not been suggested that the defendant has been taken by surprise by the plaintiffs’ submissions, or that he would have addressed the case differently had the term “negligent misstatement” been expressly employed in the pleadings.
147. That being so, it appears to me that in the circumstances, the combination of the statement of claim, the notice for particulars and replies thereto are adequate for the purpose of making a case of negligent misstatement. On the facts of the case, there can be little doubt as to whether the criteria for liability for negligent misstatement, as discussed in the authorities and most recently in Wildgust, have been met. Damages for economic loss are therefore recoverable.
148. Also, quite apart from negligent misstatement, the case in my view comes within the parameters of the Ward v. McMaster category of case, and as such is not subject to the reservations expressed in Glencar in relation to economic loss.
149. The next issue, then, is the extent of the damages recoverable.
150. The cost of the remedial works undertaken in Phase 1 presents little difficulty. These works had to be done if the house was not to continue moving. In my view it was a directly foreseeable result of the inadequate construction of the foundations that extensive and expensive works would have to be carried out. I bear in mind that an engineer nominated by the defendant’s insurance company attended at the site, inspected it and did not express any disagreement with what was being done. I therefore award the €129,000 claimed under this heading.
151. Phase 2 relates to some redecoration of the house and reinstatement of the garden after Phase 1 had been completed. Having regard to the photographs taken during Phase 1, I consider that Phase 2 was a necessary consequence. The costs have been properly vouched and I see no reason not to allow the sum of €38,525 as claimed by the plaintiffs.
152. The major issue in relation to the damages concerns Phase 3.
153. The leading Irish authority on damages in this area is the decision of the Supreme Court in Munnelly v. Calcon Limited [1978] I.R. 387. In that case, part of one of the walls of a house belonging to the plaintiff had collapsed as the result of the negligence of the defendants, who were engaged in construction work on the adjoining site. The damage was irreparable and the house had to be demolished. The High Court awarded a sum in general damages to cover the cost of building a new house on the site.
154. In allowing the defendant’s appeal, the Supreme Court held that the appropriate measure of damages was the diminution in the value of the property rather than the cost of reinstatement.
155. Henchy J. cited the following passage from McGregor on Damages (13th ed., 1972):
“The difficulty in deciding between diminution in value and cost of reinstatement arises from the fact that the plaintiff may want his property in the same state as before the commission of the tort but the amount required to effect this may be substantially greater than the amount by which the value of the property has been diminished. The test which appears to be the appropriate one is the reasonableness of the plaintiff’s desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in the value of the land.”
156. Henchy J. also accepted that two principles were basic to the law of damages. Firstly, damages should be such as to put the plaintiff, so far as money can, in the same position as he would have been had the tort not occurred. Secondly, the damages must be reasonable as between the plaintiff and the defendant. In the case before the Court, the cost of reinstatement would have given unjustifiable profit to the plaintiff excessively and unfairly penalised the defendants. Measuring damages at the diminished value, on the other hand, would enable the plaintiff to get premises no less suitable for his needs.
157. In similar vein, Kenny J. said:
“The principle of restitutio in integrum does not absolve the subsidiary rule that in every case where property is destroyed or demolished, the owner is entitled to recover the cost of restoration as damages…There may be some cases in which damages equal to the cost of restoration are the only way to put the plaintiff back into the same position as he was before the accident, but they are special cases and the onus lies on the plaintiff to establish that his is one of them.”
158. Parke J. agreed, saying that the cost of reinstatement would impose a wholly unreasonable burden on the defendants.
159. Leahy v. Rawson, referred to above, is an example of one such exceptional case in that O’Sullivan J., having had regard to Munnelly, did award the cost of demolition and rebuilding. However, that was a case where a) the house was positively dangerous and could not be occupied, and b) the cost of repair works would actually have been greater.
160. In my view the claim in the instant case for damages to cover very extensive works in order to correct the tilt is excessive and unreasonable. It would mean that the total spent on repairs to the house would be close to the price paid for it in 2008, and would be greatly in excess of any estimate of its current value. It must be remembered that the plaintiff’s own witness has described the necessity for these works as purely aesthetic. I do not consider that it is justifiable in a context where the tilt is barely perceptible, has no structural implications and appears to have caused, at most, the annoyance of having to use doorstops. In these circumstances, diminution in value is the appropriate measure in this case. I do accept the evidence that the house has probably acquired something of a reputation, despite its now-undoubted structural soundness, and that an astute purchaser would probably look for the cross fall and demand a discount. I do not see, however, that it could be as much as 50% of the value. I therefore award the sum of €75,000 under this heading to reflect a diminution in value of approximately 25%.
161. In these circumstances, there is no requirement to consider the cost of alternative accommodation.
162. The chimneys, however, are in a different category in that there are real safety concerns associated with them. A figure to cover the cost of rectifying them as stand-alone works should therefore be awarded. Given that the quantity surveyor was somewhat vague on this, I will award €11,000.
163. Finally, there is the issue of distress and inconvenience. There is no doubt but that the plaintiffs had to put up with very intrusive, noisy and messy works for the period of the Phase 1 works. The situation was particularly difficult having regard to the fact that there were three young children in the house. I consider that €25,000 is an appropriate award in these circumstances.
Walsh v Jones Lang Lasalle Ltd (HC)
[2007] I.E.H.C. 28Judgment of Mr. Justice Quirke delivered on the 24th day of January 2007
In this case the plaintiff, David Walsh, is claiming damages from the defendant to compensate him for loss and damage allegedly sustained by him as a result of negligence and negligent misstatement on the part of the defendant.
The plaintiff claims that on the 28th September, 2000 he purchased a property, (No. 77 Upper Gardiner Street in Dublin), for the sum of IR £2,342,000.00 for investment purposes. It was his intention to let the property in units to commercial tenants.
The defendant is a well-known firm of auctioneers which was retained by the owner to sell the property.
The plaintiff claims that it was expressly represented to him by the defendant that the property comprised a total floor area of 23,057 square feet. The precise measurement of the floor area of the property was so described within the defendant’s sales brochure, which was provided to the plaintiff by the defendant. The plaintiff claims that he relied upon the defendant’s calculation of the floor area when making his decision to purchase the property.
In fact the total floor area of the property was 21,248 square feet, (1,817 square feet less than what was represented to the plaintiff by the defendant). The plaintiff claims that by miscalculating the floor area of the property the defendant acted negligently and that, by publishing this incorrect calculation of the floor area within its sales brochure, the defendant was guilty of negligent misstatement.
He says that the defendant failed to exercise the requisite and appropriate standard of care which a purchaser is entitled to expect from a reputable auctioneer and valuer and breached the duty of care which was then owed by the defendant to the plaintiff. The plaintiff claims that as a result of the defendant’s negligence and negligent misstatement he has suffered losses including loss of income.
RELEVANT FACTS
1. In July, 2000 the defendant was retained, (by the owner), to sell a two storey
corner building at Upper Gardiner Street in Dublin, by private treaty for the best possible price.
The defendant prepared and published a single-page sales brochure which advertised the property inter alia as “a mixture of retail, storage and office accommodation over two floors…… situated in the heart of Dublin’s north inner city approximately five minutes walk from Dublin city centre”
On the front page of the brochure the property was described under its address as “2,142 m2- (23,057 square feet). – Site Area 0.13 Hectares (0.31 Acres)”
On the back page of the brochure, under the heading “Accommodation”, (a), the ground floor was described as having an area of 12,594 square feet, (b), the first floor was described as having an area of 10,463 square feet, and (c), the total area of the property was described as having a total area of 23,057 square feet. Corresponding measurements were provided in square meters.
The correct measurement of the first floor area was 8,573.5 square feet. The correct measurement of the total floor area of the property was 21,248 square feet.
The brochure contained a coloured photograph of the premises, a location map, descriptions of the use to which property could be put, its location and other similar details. The following paragraph was published in small print at the bottom of the front page:
“Whilst every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given.”
2. In July, 2000 the plaintiff was interested in acquiring a premises for business and investment purposes in the north inner city of Dublin. He was at that time the owner of a property at Cumberland Street North, in Dublin.
He became aware that the property, No 77, Gardiner Street was for sale. He visited the premises on the 13th July, 2000 and returned to the premises on the 14th July, 2000.
He spoke to Mr. “Woodie” O’Neill of the defendant company and expressed an interest in purchasing the property. Mr. O’Neill provided him with the sales brochures, to which reference has been made earlier.
3. By letter dated the 21st July, 2000, Mr. O’Neill advised Mr. Walsh inter alia as follows:
“Dear Dave,
77 Upper Gardiner Street.
I refer to on-going discussions in relation to the sale of the above property. A number of interested parties have shown an interest and we are instructed to finalise offers on the premises. Each of the interested parties are notified that final and “best offers” on the subject property are to be received in writing to this office no later than 12 noon on Friday next 28th July, 2000.”
The letter enclosed a copy of a draft contract and conditions of sale in respect of the property and directed enquiries to the vendor’s solicitors.
4. The plaintiff engaged a solicitor to examine the title to the property and retained a Mr. Val O’Brien, (a property surveyor), to conduct what was described as “an informal condition survey” of the property. Mr.O’Brien stated in evidence that he regularly carries out “condition surveys” of properties but has never been required by prospective purchasers to take measurements of the floor areas of properties prior to the submission of offers.
5. By an undated hand written letter, submitted by the plaintiff to Mr. O’Neill on the 28th July, the plaintiff advised the defendant inter alia as follows.
“I refer to your letter of the 21st July and would offer IR£2,342,000.00 for this property. … Please contact me at 4961753 if anything requires clarification.”
In evidence the plaintiff said that his offer was based upon a “back of an envelope” calculation that he could recover the following rental incomes as owner of the property:
(1). Shop unit at the front of the ground floor – I.R. £20.00 per square foot.
(2). Storage area at the back of the ground floor – I.R. £8.00 per square foot.
(3). First floor – I.R. £20.00 per square foot.
Based upon his calculation, the total rental income recoverable from the property was likely to be approximately IR £320,000.00 per annum and he estimated that the overall gross value of the property was in the region of IR£2,500,000.00 (after deduction of substantial costs). His offer was based upon the floor areas stated in the brochure.
In relation to the “waiver” paragraph at the bottom of the front page of the brochure he stated “I would have been aware of the waiver. I cannot recall whether I read it with any care. I noted that.. every care had been taken. I knew that Jones Lang was a firm of the utmost probity.”
He said that he had purchased properties on previous occasions and on subsequent occasions and had “…never had a building measured on any occasion before making a purchase… I depend on the reputation, credibility and integrity of the person advertising…”
6. On the 9th of August, 2000 the plaintiff entered into and executed a contract for the purchase of the property. He then commissioned Mr. Tony Rooney of Messrs. Palmer McCormack, Chartered Surveyors to assist him in the letting of the property (he was also considering occupying part of the property for his own business).
On the plaintiff’s instructions Messrs. Palmer McCormack provided a report upon the property for his bankers (Messrs. ACC Bank). The report was contained in a letter from Palmer McCormack to ACC Bank dated the 15th August, 2000. The report provided inter alia that:
“The property … comprises approximately 23,000 square feet gross on a site of almost a 1/3 of an acre. (We have not measured this building and have taken floor areas from the Jones Lang Lasalle sales brochure).
The office accommodation at the first level comprises approximately 10,463 square feet gross and in our opinion has a rental value of IR £15.00 per square foot net. Approximately 4,000 square feet at first floor level requires refurbishment and improvement and we understand that Mr. Walsh intends to upgrade this space to current office standards.”
The plaintiff’s bank made no enquiries as to the accuracy of the measurements and did not carry out a survey itself in relation to the property.
7. Mr. Rooney was successful in letting the first floor and a small part of the ground floor to the Commissioners of Public Works for a period of four years and nine months from the 1st April, 2001, at a rental of IR£20 per square foot. The letting was negotiated over a period of time and involved substantial internal alterations to the building in order to accommodate the requirements of the Health Service Executive, which ultimately took occupation of the relevant parts of the building after the negotiations had been completed.
8. By letter dated the 20th March, 2001 Mr. Val O’Brien who is a chartered building surveyor advised the plaintiff that the total floor area of the property was 21,248 square feet, (8,573.5 square feet at first floor level and 12,674.6 square feet at ground floor level).
The plaintiff, in evidence stated that he was astonished when he received this information since he had believed that the total floor area of the building to be almost 20% greater having regard to the precise measurements within the defendant’s brochure. He said that commercial life would be “untenable” if every perspective purchaser was unable to rely upon the precise measurement provided by seemingly reputable auctioneers and estate agents.
He said that purchasers of commercial property believed that “waivers” of the type relied upon by the defendant were to be found in most auctioneers’ brochures and were intended to safeguard auctioneers from liability in respect of “minor” miscalculations.
He stated that his view upon this was fortified by the fact that the defendant had acknowledged that between ten and twelve potential investors who were very interested in purchasing the property had viewed the property but had not measured it. If they had done so then the very substantial miscalculation of the floor areas would have been discovered before the property was sold.
9. Mr. Barry Smyth who is a chartered surveyor with Messrs. De Vere White
Smyth stated in evidence that it would be most unusual for investors to measure properties before offering to purchase. He said that he had never encountered circumstances where that had occurred. He said that most auctioneers had some form of disclaimer on their brochures. He said that these disclaimers comprised “… an effort to protect the agent from relatively minor errors… I would expect their measurements to be correct… I would expect purchasers to rely upon my measurements…”
Mr. Peter Rowan of Lambert Smith Hampton, Auctioneers stated in evidence on behalf of the defendant that a prudent investor or intending purchaser should carry out a detailed inspection and measure all floor areas before purchasing a property. He said it would not be normal or prudent and would not be considered acceptable practice to rely solely on the measurements set out in a sales brochures prepared by a vendor’s agent.
9. Mr. Nigel Healy who is a director of the defendant company described the “disclaimer” as a form of advice to a purchaser to carry out inspections and measurements as a form of “due diligence.” He said that the measurements on the brochures were as a “as a general guide” to prospective purchasers.
ISSUES
The plaintiff has not challenged the validity of the contract into which he entered for the purchase of the property. He has not claimed damages or rescission of the contract on grounds of misrepresentation or fundamental breach of the terms of the contract.
His claim is confined to the contention that, by miscalculating the floor area of the property and publishing the incorrect calculation within its sales brochure, the defendant acted in breach of a duty of care which it owed to the defendant. In consequence, it is claimed, the defendant was guilty of negligence and negligent misstatement, which resulted in the plaintiff sustaining loss and damage, (including an ongoing loss of income).
The issues for determination by the court are as follows:
1. On the facts of this case did the defendant owe a duty of care to the plaintiff to ensure that the calculation of the floor area of the property which the defendant published in its sale brochure was accurate?
2. if so was the defendant in breach of that duty?
3. if so, (a) was the plaintiff guilty of any negligence or breach of duty which caused or contributed to the loss allegedly sustained by him and,
if so, (b), to what extent has the plaintiff caused or contributed to his own alleged loss and damage and
4. what damages, if any, is the plaintiff entitled to recover from the defendant.
1. DUTY OF CARE
Mr. Sanfey SC on behalf of the defendant argued that the defendant owed no duty of care to the plaintiff to ensure that the details published in the defendants’ sales brochure were accurate. He contended that such a duty will only come into existence when a “special relationship”, of the kind identified by Lord Reid in Hedley Byrne & Company Limited v. Heller & Partners Limited [1964] AC 465 exists between the parties.
Pointing to the “disclaimer” published in the defendant’s sales brochure Mr. Sanfey argued that no special relationship can be said to have come into existence between the plaintiff and the defendant, in circumstances where the plaintiff has been expressly advised to satisfy himself as to the correctness of the information provided by the defendant.
In support of his contention Mr. Sanfey SC also relied upon a number of English and Irish Authorities including Smith v. Eric. S. Bush [1990] 1. A.C. 831, Bank of Ireland v. Smith [1966] I.R. 646, McAnarney v. Hanrahan [1994] 1 I.L.R.M. 210 and McCullagh v. Lane Fox & Partners Limited [1996] P.M.L.R. 205 C.A.
He argued that, in cases such as this a “third element” in addition to “reasonable foreseeability” and “proximity” must be considered by the courts. He contended that in Caparo Industries Plc v. Dickman [1990] 2 AC 605 the House of Lords has held that liability for economic loss due to negligent misstatement is confined to cases where the statement or advice had been given to a known recipient for a specific purpose of which the maker was aware and upon which the recipient had relied and acted to his detriment. In that case the Court (Lord Bridge) observed inter alia at pp 617/618) that:
“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.”
In the recent case of Wildgust and Another v. Bank of Ireland and Another [2006] 2 ILRM 28, the Supreme Court (Geoghegan.J), considered the “…sharp distinction between negligence in act on the one hand and negligence in a statement on the other hand.”. Noting that this “third element”, (described as “reasonableness in the imposition of a duty of care”), had been endorsed obiter by the Supreme Court (Keane C.J.) in Glencar Exploration Plc v. Mayo County Council (No. 2) [2002] 1 IR 84, and without conceding that “the law of negligent misstatement is a separate code from the law of negligent acts” the court reviewed the history of the tort of negligent misstatement and referred to “other special relationships” identified by Lord Reid in Hedley Byrne.
Geoghegan, J. continued “in Hedley Byrne the only relationship alleged was the relationship between the enquirer and the person giving the information. Hence the emphasis on reliance by the enquirer. It is, however, a small extension of this and justified in my view by later case law, that where a person who is not the enquirer is damaged as a consequence of the wrong answer and where the existence of such a person and the reasonable foreseeability of such damage ought to have been present in the mind of the person giving the information, there was a special relationship with that person also which gave rise to a duty of care.”
In the same case the Supreme Court (Kearns J.) indicated that “… I favour an interpretation or adaptation if needs be, of the Hedley Byrne principles which would include more than just the person to whom the negligent misstatement is addressed. The “proximity” test in respect of a negligent misstatement in my view must go further than that and include persons in a limited and identifiable class when the maker of the statement can reasonably expect, in the context of a particular inquiry, that reliance will be placed thereon by such person or persons to act or not act in a particular manner in relation to that transaction.”
In the instant case the information contained within the brochure prepared and published by the defendant was directed towards a very specific and identifiable category of person.
The defendant is a large firm which has been in existence for a considerable period of time It has justifiably acquired an excellent reputation for competence probity and integrity in its business dealings. It holds itself out as a company with particular skills and expertise in the commercial property markets in Ireland and other countries. It relies upon its reputation for excellence in order to encourage prospective customers to avail of its services.
The brochure was expressly designed to attract the attention of potential purchasers to a centre city commercial property in order to encourage them to bid or “tender” against one another for the property. It was an integral part of a tendering process designed to maximise the price which potential purchasers would pay for the property. It was designed also to maximise the fee which the defendant would obtain upon the sale of the property.
It was to be expected that the potential purchasers would rely upon the information contained within the brochure when deciding whether or not to offer to purchase.
Prima facie therefore, the relationship between the plaintiff and the defendant was sufficiently proximate to give rise to a “special relationship” of the kind identified by the Supreme Court (Geoghegan and Kearns. J J.) in Wildgust.
It was contended on behalf of the defendant that the “disclaimer” published at foot of the defendants’ sales brochure precludes the existence of the “special relationship” contended for on behalf of the plaintiff. It was argued that the existence of the “disclaimer” introduced into this case the “third element” referred to earlier and makes it unfair, unjust and unreasonable for this court to impose upon the defendant a duty of the kind contended for. I do not accept that this is so.
The information within the brochure was published by the defendant for the express purpose of influencing a limited number of identifiable persons. The publication of the “disclaimer” was immaterial to that fact. The plaintiff was a person to whom the brochure was expressly directed and he was influenced by the information published within the brochure. I am satisfied on the evidence, that he relied upon the measurements within the brochure when calculating his precise bid or “tender” for the purchase of the property.
It seems to me that the question for determination in relation to the “waiver” is whether its presence within the brochure and its precise terms are together sufficient to exclude the defendant from liability to the plaintiff in respect of negligence by the defendant in the measurement of the floor area of the property and negligent misstatement on the part of the defendant in publishing the incorrect measurements of the floor area. On the evidence I do not believe that they are sufficient.
I accept the evidence of the plaintiff and Mr. Barry Smyth that it is not and has not in the past been the practice for prospective purchasers of commercial property in the Dublin area to measure the floor areas of properties before offering to purchase. I accept also the evidence of Mr. Rooney on that issue.
I accept also the evidence of the plaintiff and of Mr. Barry Smyth that the “waiver” and other similar “waivers” published by reputable auctioneers are and have in the past been regarded by potential purchasers as relating to relatively minor measurement errors.
Whilst I accept also the evidence of Mr. Peter Rowan and Mr. Healy that prudent purchasers should, where possible, measure floor areas and carry out detailed inspections before purchasing properties, I am satisfied on the evidence that, where detailed and precise measurements of commercial properties are provided within the brochures of experienced and reputable auctioneers, it is the practice for prospective purchasers to rely upon the accuracy of those measurements, subject to potential minor miscalculations.
The precision which attached to the measurements of the floor areas is of considerable significance. The brochure provided that the first floor area measured precisely 10,463 square feet. The correct measurement of the first floor area was 8,573.5 square feet.
The “waiver” comprised a sentence in the following terms.
“Whilst every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given.”
The plaintiff, in evidence, agreed that he “would have been aware of the waiver…(and)… noted that every care had been taken. I knew that Jones Lang was a firm of utmost probity.”
It is difficult to accept that “every care has been taken in the preparation of these particulars” because the floor area, (perhaps the most important particular found within the brochure), was overstated to a degree which was seriously misleading to prospective purchasers. The area of the first floor, (which had a rental value in the region of IR £20.00 per square foot), was overstated by more than 1800 square feet.
Undeniably the defendant published grossly inaccurate measurements of the floor area of the property within its sales brochure. It knew or ought to have known that the plaintiff and the other prospective purchasers, to whom the brochure was directed, would rely upon and be influenced by measurements of such apparent precision.
The defendant, nonetheless, argued that it is not liable for any absence of care on its part because the “waiver” provided that the particulars “… are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given.” I do not accept that this provision is sufficient to relieve the defendant of liability in the circumstances of this case.
The duty of care for which the plaintiff contends was to ensure that the calculation of the floor area of the property which the defendant published in its sales brochure was correct. It is the existence of that duty which is in the dispute in these proceedings. If the duty existed then it was a duty to have reasonable care for the interests of the plaintiff in the circumstances. It is not suggested that there was a duty upon the defendant to protect the interests of the plaintiff. It is not suggested that the defendant was not entitled to prefer its own interests or the interests of another party to the interests of the plaintiff. What is contended is that, in the circumstances of this case, there was a duty upon the defendant to ensure that the information which it provided for the alleged benefit of a limited category of persons, (including the plaintiff), was reasonably accurate in the circumstances.
If the defendant wished to reserve to itself the right, (a) to publish within its sales brochure, precise measurements which were in fact grossly inaccurate and, (b) to relieve itself of liability to the category of persons to whom the brochure and its contents were directed, then there was an obligation upon the defendant to draw to the attention of the plaintiff and other prospective purchasers the fact that the seemingly precise measurements published were likely to be wholly unreliable and should not be relied upon in any circumstances.
By including within its brochure an enigmatic sentence in small print claiming to have taken particular care in the preparation of all of the particulars within the brochure but advising prospective purchasers to “satisfy themselves as to the correctness of the information given” the defendant failed to discharge that obligation.
On the evidence of the practice adopted by buyers and sellers of commercial property in Dublin at the relevant time the defendant’s “disclaimer” was a quite inadequate means of notifying prospective purchasers that the seemingly precise measurements of the floor areas so prominently published within the sales brochure were wholly unreliable.
It follows that the “waiver” published at the bottom of the front page of the defendants’ brochure was not effective to relieve the defendant of liability in respect of negligence and negligent misstatement of the type contended for on behalf of the plaintiff.
I am satisfied on the facts of this case that the loss and damage claimed on behalf of the plaintiff was a loss which was reasonably foreseeable by the defendant. The defendant is a reputable and experienced firm of auctioneers and estate agents. Its members are familiar with the need for accuracy in the measurement of floor areas of commercial buildings.
They were and are aware that the total rental income recoverable from a commercial property will often be the principal factor in the calculation of its value. The floor area of the premises is an important factor in establishing the total rental income recoverable from the property.
It was to accommodate such calculations by prospective purchasers that the defendant arranged to have the property surveyed and measured and the results published in its brochure. However the floor areas were measured by the defendant negligently and the defendant did not take appropriate steps to ensure that the information which it published in its brochure was accurate.
The defendant knew, or ought to have known, that the plaintiff, (and the other perspective purchasers of a property), would estimate the value of the property (and accordingly of the amount which they were prepared to bid for the property) with particular reference to the rental income recoverable from the property. The rental income, in turn was dependent upon a precise measurement of the floor area available for letting. It was that precise measurement which the defendant purported to provide within its brochure.
It was clearly foreseeable by the defendant that an overstatement of the floor area of the property would give rise to an inflated estimate of the rental income recoverable from the property and a corresponding inflation in the estimated value of the property. It was similarly foreseeable by the defendant that if the property was purchased based upon an over-estimate of its value and of its potential rental income, then losses would be sustained by the successful purchaser.
It follows that loss and damage to the plaintiff in this case was reasonably foreseeable by the defendant. Having found, as I have, that, (a) the relationship between the plaintiff and the defendant was sufficiently proximate to give rise to a “special relationship” of the kind identified in Wildgust and, (b) that the loss allegedly sustained by the plaintiff was reasonably foreseeable in the circumstances and, (c) that the imposition upon the defendant of such a duty is, in the circumstances not unfair, unjust or unreasonable. It follows that I am satisfied on the facts of this case that the defendant owed a duty of care to the plaintiff to ensure that the calculation of the floor area of the property in which the defendant published in its sales brochure was accurate.
Since it has been conclusively established by way of unchallenged evidence that the area of the first floor of the property was overstated by more than 1800 square feet it follows that the defendant was in breach of its duty to the plaintiff.
2. & 3. – BREACH OF DUTY AND CONTRIBUTORY NEGLIGENCE
It has been pleaded on behalf of the defendant that any loss or damage sustained by the plaintiff has been “caused solely or alternatively contributed to by reason of his own negligence and/or contributory negligence in failing to carry out a survey of the premises prior to his entry in (to)… the contract and completion of the purchase of the premises… when it would have been prudent to do so….”
As I have indicated earlier, I accept the evidence of the plaintiff and of Mr. Barry Smyth that it is not and has not in the past been the practice of prospective purchasers of commercial property in Dublin to measure the floor areas of property before offering to purchase. I also accept the evidence of Mr. Rooney on that issue.
Accordingly I do not find that the plaintiff was guilty of negligence in failing to carry out a survey of the premises prior to his entry into the contract before the purchase of the property.
No evidence was adduced in these proceedings suggesting that it is, or was, or has been a practice for prospective purchasers to measure the floor areas of properties after entering into the contract for purchase and before the completion of the contract.
Mr. Peter Rowan and Mr. Healy stated that in their opinions that prudent prospective purchasers should measure floor areas and carry out detailed inspections before offering to purchase commercial property in Dublin however, I did not understand any expert witness to suggest that, where, as in this case, a prospective purchaser relied upon the precise measurements contained within the selling agents sales brochure when offering to purchase, it would be desirable for those measurements to be confirmed by way of a detailed inspection and survey between the date when the contract for sale is executed and the date when the purchase is completed.
It might well be that if such an inspection and survey had been carried out on behalf of the plaintiff then the miscalculation would have been discovered. However, no evidence has been adduced in these proceedings to support the contention that such an inspection or survey should have been carried out in order to confirm the precise measurements contained within the brochure.
In the circumstances then I am not satisfied that any contributing negligence on the part of the plaintiff has been established by way of evidence in these proceedings.
4. DAMAGES
Evidence has been adduced by Mr. Barry Smyth on behalf of the plaintiff and by Mr. Rowan on behalf of the defendant relating to the loss sustained by the plaintiff as a result of the overstatement of the area of the first floor of the property.
I am satisfied on the evidence and on the balance of probabilities that, if the defendant’s sales brochure had contained accurate measurements of the floor area of the property then the plaintiff and the other prospective purchasers would have submitted bids or “tenders” smaller than those which were submitted. It is probable that the plaintiff would still have been successful in purchasing the property based upon a “back of an envelope” calculation of the kind which gave rise to his successful bid or “tender”.
Mr. Smyth, on behalf of the plaintiff, estimates the losses claimed by the plaintiff at €590,000.00. That calculation is based upon the fact that, historically, a “blue chip” tenant was acquired, (The Office of Public Works), which was prepared to rent all of the available space from the plaintiff at an agreed rental of €25.39 per square foot.
Mr. Smyth has calculated the plaintiff’s loss as the capital value of the reduction in the plaintiff’s income from the property, (based upon a projected yield of 7.5% and allowing for acquisition costs including stamp duty at 6%).
Mr. Rowan who testified on behalf of the defendant estimated the potential loss to the plaintiff at €368,244.00. His calculation was based upon a diminution in the value of the premises at an overall rate or value to be applied to the property of €153.57 per square foot. He calculated the diminution in the value of the property at €368,224.00 on the basis that the floor area was overstated by 1889 square feet. The overstatement was, in fact, 1817 square feet or thereabouts.
I am satisfied that Mr. Rowan’s calculation best represents the approximate loss which the plaintiff has sustained as a result of the negligence and negligent misstatement of the defendant. He paid considerably more for the property than it was worth when advertised. The diminution in the value of the property purchased is probably the most appropriate measure of his loss. He is, therefore, entitled to recover the sum of €350,000 by way of damages to compensate him for that loss.
Patrick Stafford v Denis Mahony
, Desmond Smith and Robin Palmer, (Keane Mahony Smith)
1976 No. 1668P
High Court
21 March 1980
[1980] I.L.R.M. 53
(Doyle J)
Doyle J
delivered his judgment on 21 March 1980 saying: The plaintiff Mr Patrick Stafford is a gentleman who lived in England until early in the year 1973 when he came to reside in Dublin. The defendants are partners in a firm of auctioneers and valuers carrying on business in Dublin under the name and style of Keane Mahony Smith. The action concerns a claim by the plaintiff that he retained the defendants as auctioneers to advise him in the purchase of property and that by reason of negligent misrepresentation on their part he suffered damage. He claims that in or about the month of March 1973 he sought the services of the defendants to find for him a property suitable as a residence but one which would be a sound investment in that it would be available for immediate resale at a profit. He claims that the defendants introduced him to premises known as the Collegiate School, Celbridge, County Kildare, the property of the Incorporated Society for Promoting Protestant Schools in Ireland, hereinafter known as the Collegiate School. He says that he was induced to purchase this premises upon the representations of the defendants that the land and premises would be able to be resold at once for an enhanced price and that they were in other respects a first-class investment property and suitable for the purposes which he had announced to the defendants. He claims that the premises were, in fact, a bad investment; that the defendants’ valuations were unrealistically high and further he says that, unknown to him, the plaintiff, the property was the subject of certain development plans by the local authority which involved the running of a public road through the property and that the defendants failed to ascertain this fact, of which the plaintiff was unaware, or to advise him about the effect of such a development plan upon the future value and utility of the property. He had to resell the property at a loss.
The defendants in their defence deny that they were retained by the plaintiff *55 as his auctioneers at the time alleged, that is, about the month of March 1973, but they claim that in fact they were then instructed by one James Stafford, a brother of the plaintiff, to look out for him for a Georgian-style residence and that on his behalf they located the property known as the Collegiate School. They claim that they did not give any professional advice or make any representation to the plaintff and the gravamen of their defence is that the plaintiff, Mr Patrick Stafford, came into the picture only at the last moment upon the signing of the contract of sale on 21 December 1973. Later when the evidence in the case was unrolled it transpired that this ground of defence related to what was claimed to be a private arrangement by the brothers James and Patrick Stafford for their mutual convenience which involved that Mr Patrick Stafford should step into the shoes of his brother at the signing of the agreement. His position then and thereafter was to be governed by a private independent contract in writing between the brothers. As a corollary and logically following upon this ground of defence, the defendants denied any misrepresentation negligent or otherwise to the plaintiff, Mr Patrick Stafford, and denied negligence or breach of duty on their part such as would cause the damage which the plaintiff alleged.
The plaintiff Mr Patrick Stafford, having recounted his return from London to Dublin early in 1973, stated that soon afterwards he met Mr Denis Mahony one of the defendants and retained him as his adviser to find for him a property of a residential character about twenty miles from Dublin. He was introduced to some properties, in particular premises known as Hamwood House near Maynooth, in the month of June 1973 which he inspected with the defendant Denis Mahony. This property, Mr Stafford said, he felt was attractive and he was interested in pursuing the matter but the sale did not go through because he said Mr Mahony subsequently sold the property to another client of Keane Mahony Smith. He later, on Mr Mahony’s advice, inspected another property called Newtown House near Leixlip which was a residence with land and in some respects seemed to fulfil his requirements, but because of certain proposed developments in the immediate neighbourhood Mr Stafford thought that the future value of the premised would not be enhanced when a development would take place and he did not go through with the purchase of this property.
Eventually in the month of November 1973 he claims that Mr Mahony suggested that he should take a look at premises known as the Collegiate School, Celbridge. He visited it on a number of occasions and discussed a prospective purchase with Mr Mahony in his office. Eventually they had a somewhat lengthy discussion in the course of which Mr Mahony pointed out that although the premises could be obtained for the sum of £70,000 he, Mr Mahony, could easily sell the property at any subsequent time for £100,000. He also informed Mr Stafford that expenditure of £10,000 to £15,000 would be sufficient to make the premises suitable as a residence. It is material to note that the premises had for a number of years been used as a boarding school for girls and was laid out in a manner suitable to such occupation, in dormitories, class-rooms and the usual arrangements to be expected in a school premises. At the conclusion of this interview in Mr Mahony’s office the plaintiff said that he considered the matter and about a week later he returned when he met Mr Palmer, another member *56 of the firm. Mr Palmer assured him that the property was good value for money. He alleged that the six acre field attached to the property would, with planning permission, be alone worth the purchase price and he informed Mr Stafford that planning permission could easily be obtained. After further consideration Mr Stafford says that he made up his mind to purchase, early in the month of December 1973, and he instructed Mr Mahony to buy it on his behalf. He retained as his solicitor Mr Thomas Bacon principal of the eminent firm of James G. O’Connor & Co. to act on his behalf.
A contract of sale was signed on 21 December 1973. The form used was a print prepared by the Incorporated Law Society and it is important at this stage to look at the terms of the memorandum annexed to the contract. The body of the memorandum consists of a printed document with blanks for suitable insertions of particulars as to the parties, the purchase price and other matters. The name of the vendors, the Incoporated Society for Promoting Protestant Schools in Ireland, is typed into the memorandum and the name of the purchaser is typed as ‘James Stafford.’ At the time of the execution of the agreement the name James Stafford in typescript was crossed out and the name ‘Patrick’ written in pen by Mr Thomas Bacon, solicitor for Mr Patrick Stafford. Also in Mr Bacon’s hand-writing is the date, 21 December 1973; Mr Patrick Stafford’s address at Ardoyne House, Pembroke Park, Dublin 4, and an alteration in the purchase price, which is stated to incorporate auctioneers’ fees, to £73,500 and a deposit amounting to £10,000, leaving a balance due on completion of £63,500, which alteration was also made by Mr Bacon. Mr Bacon also wrote in the new closing date, namely 31 January 1974 in substitution for the original closing date of 30 November 1973 which had been typed in, as had the earlier particulars referred to. It may be noted that in the statement of claim at paragraph 5 the plaintiff had claimed that he had paid the purchase price of £70,000 and £3,500 in respect of fees whereof £1,750 was received by a firm known as Osborne King & Megran the vendor’s auctioneers and £1,750 was received by the defendants as the plaintiff’s advisers. This averment was contested at paragraph 4 of the defence where it was stated that the said sum of £1,750 stated to have been received by the defendants was not received by them as the plaintiff’s advisers but was received as 50% of the commission in respect of the sale of the said premises to the plaintiff.
In the course of his direct evidence the plaintiff did not purport to explain the circumstances in which the name of his brother James had originally been typed into the memorandum attached to the contract as the purchaser of the premises, beyond stating that at one time his brother James had been in contact with Keane Mahony Smith and that this had been mentioned by Mr Mahony in the course of the long interview at which he was claimed to have made the negligent misrepresentations relied upon. Mr Patrick Stafford said that some two months after the execution of the contract for sale, that is sometime in February of 1974, he engaged the services of Mr Frank Barry, an architect, to inspect the premises and to estimate the cost of converting it for the purposes of a private residence. Mr Barry reported within a couple of days that £10,000 or £15,000 would be a complete waste of money if expended upon the premises. To put it into proper habitable condition would require many times that amount. The *57 plaintiff stated that on receiving this report he decided to resell and so informed Mr Mahony. He alleges that Mr Mahony then once more assured him that there would be no problem in getting £100,000 for the property. It does not appear that anything was done in the way of arranging a resale for at least a year. In the meantime the plaintiff completed the purchase from his own resources, he claimed. The sale was ultimately concluded on 14 May 1974. The plaintiff appears to have discussed the matter with other house agents and made up his mind that it would be a difficult property to sell. He then decided to develop the property and applied for planning permission in the year 1975. This was refused in the month of April and the refusal was unsuccessfully appealed. He states that late in 1975 Mr Desmond Smith, one of the defendants, agreed to arrange for the sale of the premises and it was eventually sold for a sum of £50,000 on 17 November 1975.
There was evidence in the course of the hearing that at the material time and certainly in 1974 there was a sharp depreciation generally in the prices of property of this character.
The plaintiff said that he was startled to receive, in November 1975, a claim from Mr Smith for £1,750 for auctioneers fees on the resale. He had told Mr Smith he said, that if he wanted fees at 3.5% he, Stafford, would sue for damages in respect of the original transaction. The plenary summons in the present case was issued on 30 April 1976. Proceedings were commenced in the Circuit Court by the auctioneers to recover their fees on the resale.
During examination-in-chief the plaintiff stated he had completed the sale from his own resources. In cross-examination he stated that in December 1973 when the contract was signed he had sufficient money in the City of Dublin Bank to buy the property and that in fact he had paid the deposit by cheque for £10,000 payable to Mr Bacon’s firm. When shown a letter dated 21 December 1973 from Estates Management and Development Ltd, which he agreed was his brother’s firm, to Mr Bacon headed: ‘Re: Collegiate School. We enclose herewith cheque for £5,000 as arranged,’ he said that he did not believe that his brother had paid any monies in respect of the purchase; that he was not aware of it at the time. He denied that he had appeared as a purchaser for the first time at the time of contract of sale or as a substitute for his brother, who would have had to purchase through a limited company, and to avoid the delay entailed in obtaining the necessary consent of the Land Commission to a sale to a limited company. He later agreed that the £10,000 deposit was paid by two cheques for £5,000, one from his brother (and I quote) ‘which he owed me for a few cases of wine.’ He denied the existence of any arrangement with his brother James whereby he, Patrick, was to have an option to buy the premises for six months or that they would purchase jointly and stated that he did not know that James was interested in the property. On this statement of fact and on other important issues he is contradicted by the terms of attendance dockets made by Mr Bacon and by correspondence relative to the sale of the premises conducted by Mr Bacon on behalf of Mr James Stafford as purchaser up to the date of the contract of sale. Where Mr Patrick Stafford’s testimony conflicts with that of Mr Bacon and the documentation prepared by Mr Bacon, notably an attendance docket of 21 December 1973, *58 No. 19 in the book of correspondence, and a letter dated 16 January 1974 from Mr Bacon to Mr Patrick Stafford, I reject the evidence of the plaintiff. Mr James Stafford did not give evidence and no written agreement between him and his brother or any note or memorandum thereof was produced.
Mr Denis Mahony, the first named defendant, stated in evidence that he was aware in 1973 that James Stafford was interested in buying the Celbridge Collegiate School but he had not personally dealt with the matter and had not seen the property, which was the responsibility of Mr Palmer. He dealt with Mr James Stafford. He first visited the premises with Mr Palmer and Mr Patrick Stafford when the resale was contemplated. Patrick Stafford never suggested to him that he had (and I quote) ‘led him into a bad proposition.’ He, Mr Mahony, had never had any dealings with Patrick Stafford before he signed the contract in December 1973 and did not make any representations to him as alleged. In cross-examination he agreed that Patrick had come to the office of Keane Mahony Smith in 1973; he had seen him there ten or twelve times and had spoken of this. Patrick Stafford was enquiring about every sort of property. He, Mr Mahony, believed that Patrick Stafford had bought the Collegiate School from his brother James in 1974 because he thought it would show great capital appreciation. I quote Mr Mahony: ‘He told me so. He had never given me specific instructions to buy any particular property. I knew he wanted to buy a gentleman’s residence. I was one of the people in the office whom he dealt with.’ I am satisfied that Mr Mahony has given a truthful and reliable account of his own transaction and those of members of his firm with Mr James Stafford and Mr Patrick Stafford respectively, so far as these transactions were known to him.
Another and perhaps subsidiary part of the plaintiff’s case in evidence relates to dealings which he claims to have had with Mr Palmer, a member also of Keane Mahony Smith and a defendant in these proceedings. Although Mr Palmer, unlike Mr Mahony, is not specifically mentioned in the statement of claim as having made representations to Mr Stafford or induced him to make the purchase, nevertheless I must, I think, consider the allegations made against him in the testimony of Mr Patrick Stafford. Indeed, the topic of obtaining planning permission by the plaintiff for development by him of part of the lands forms no part of the statement of claim as originally delivered, but by an amendment sought and obtained in the course of the trial it was allowed to be added to by a paragraph alleging that the defendants had represented and advised that planning permission could be obtained to develop the major portion of the lands which would make such lands alone worth the price being asked for the entire of the property. In a further amendment permitted at the same time to paragraph 7 of the statement of claim as originally delivered, the name of Mr Palmer was introduced for the first time. The amendment as granted enabled the paragraph to allege that the said advice was given verbally by the defendant Denis Mahony and by an employee of the defendants Robin Palmer and paragraph 7 then continued as before: ‘and the plaintiff was induced to and did make the said purchase and did pay the said fees to the defendants by and on the faith of said advice.’ In paragraph 7 as originally drawn the date read ‘prior to 11 January 1974’ but this was allowed to be amended, first, to 23 December 1973 and at a still later stage *59 to read ‘prior to 21 December 1973’. In these circumstances it is not, I think, unreasonable to suppose that even during the course of the trial on the two different dates upon which amendments were allowed, Mr Patrick Stafford was still in a state of uncertainty as to the precise time at which he was claiming the representations about planning permission were made to him by either Mr Mahony or Mr Palmer.
Mr Palmer is mentioned in evidence by Mr Patrick Stafford as first having been encountered during the course of the long meeting which he had had at Mr Mahony’s office. It was a meeting lasting about 45 minutes when a discussion was had, as was alleged, between Mr Mahony and Mr Patrick Stafford as to the general suitability of the Collegiate School for the purpose for which he required a property at which he says Mr Mahony made most of the representations upon which he now relies, especially as to the value of the property and the prospect of a ready resale at a substantially enhanced price. Mr Stafford says that he met Mr Palmer either in the course of that meeting or perhaps also when he returned a short time later. He alleges that Mr Palmer informed him that the property was good value for money and, in particular, that the six acre field forming part of the property, once planning permission had been obtained, would alone be worth the purchase price, and that such planning permission could readily be obtained. Mr Stafford’s comment on this assurance was (and I quote) ‘This lent credibility to the purchase. I made no decision but I said I was very interested.’ He went on to say that shortly afterwards he had had another conversation with Mr Mahony but that there had been no mention this time about the planning permission. He had made up his mind early in December that the property was what he was looking for and instructed Mr Mahony to buy it on his behalf.
In the course of his evidence Mr Mahony, the first named defendant, mentioned that Mr Palmer had been the member of the firm dealing with the Collegiate School premises on behalf of Mr James Stafford. As earlier mentioned, Mr Mahony first came into direct contact with the premises when the question of resale arose and when Mr Patrick Stafford had told him that he had bought or was about to buy the Collegiate School from his brother James. Mr Mahony then went for the first time to see the Collegiate School and he was accompanied by Mr Palmer and by Patrick Stafford. The member of the firm who eventually negotiated and carried through the resale of the premises for Mr Patrick Stafford was Mr Smith. In cross-examination by Mr Barron for the plaintiff, Mr Mahony gave substantially the same account as to the circumstances of his first being actively concerned with the Collegiate School property and the fact that Mr Palmer was dealing with it when Mr Patrick Stafford had decided to buy from his brother James. Mr Mahony stated his belief that until Mr Patrick Stafford had informed him that he Patrick was purchasing the premises from his brother James nobody in the office knew of this circumstance which, he believed, was made known to him in 1974. At a later stage of his cross-examination however Mr Mahony agreed, in answer to Mr Barron, that he knew or had learned that Patrick Stafford’s name appeared in the contract of sale because he was the purchaser on the date when the contract for sale was executed, namely 21 December 1973. He believed that he would have got that information from Mr *60 Palmer. Mr Mahony specifically repudiated the lengthy meeting in November 1973 to which Mr Patrick Stafford had sworn. He stated that no such meeting took place or any meeting at which all the pros and cons of a purchase by Patrick Stafford were discussed. He went on to say that if any meeting of this character had taken place between the plaintiff and Mr Palmer then he Mr Mahony might possibly not have learned about it. He had never discussed the Collegiate School property with Mr Patrick Stafford in the year 1973.
Mr Robin Palmer, a partner in Keane Mahony Smith and the third named defendant, in the course of his evidence stated that he had seen details provided by Osborne King & Megran of the Collegiate School property and thought it might suit his client Mr James Stafford. He was looking for a very prestigious house with trees and a mature setting. Until he had seen these particulars he had not shown Mr James Stafford any other property. When he first learned that it was on the market it was for letting, but Osborne King & Megran informed him that they would consider selling it. He brought Mr James Stafford down to see the property probably on 18 September 1973. This was the first time that he, Mr Robin Palmer, had seen the property. He gave a description of its appearance and stated that he thought it would suit Mr James Stafford but that it would require partial demolition, particularly of the dormitory at the back of the premises, to render it suitable as a gentlemen’s residence. He estimated that a sum of perhaps £60,000 would be required to make it into liveable premises. He so informed Mr James Stafford and he says (and I quote) ‘I made it quite clear that it was not a profit making property, a ‘turn around.’ It would suit his requirements with a lot of money expended on it.’ Mr Palmer further stated that the Incorporated Society for Protestant Schools, the vendors, were looking for £80,000 for the property. On 19 September 1973 Mr Palmer brought Mr James Stafford’s architect Mr Frank Barry to look at the property and Mr James Stafford some three days later made an offer of £70,000 which was accepted.
All these transactions Mr Palmer said took place towards the end of September and in early October of 1973. He made some enquiries from Messrs. Hayes & Sons solicitors for the vendors to enquire if the contract had been signed but did not learn until the end of December 1973 or the beginning of January 1974 that the contract had been signed by Mr Patrick Stafford. Prior to learning this fact he had not been aware that Mr Patrick Stafford might be the purchaser. He had had no discussions with Mr Patrick Stafford about the property up to the time of the execution of the contract for sale. Between that date and the date of closing he had some discussion, that is between the months of January and May 1974, with Mr Patrick Stafford. He stated that he did not tell him that he could get planning permission and sell portion of the land for the purchase price. He was aware that between the months of May and July 1974 Mr Patrick Stafford had instructed Keane Mahony Smith to resell the property. Mr Palmer said (and I quote): ‘I don’t think he instructed me. It was ultimately sold by my partner, Mr Desmond Smith, for £50,000’.
In cross-examination Mr Palmer stated to Mr Barron that James Stafford had told him when Patrick had arranged to buy the property from him. He, James Stafford, said that he was not proceeding; that his brother would take over in *61 his place. Mr Palmer had obtained this information from James at the end of December 1973 or at the beginning of January 1974.
The activities of the firm of Keane Mahony Smith were conducted in different divisions, Mr Palmer was, with Mr Mahony, in the farm section which was the division of the firm dealing with properties such as the Celbridge Collegiate School. He stated that any enquiry for a gentleman’s residence by Mr Patrick Stafford would have had to come to him or to Mr Mahony. It had not come to him. His discussions with Mr Patrick Stafford were, substantially, when he wanted to resell the property. He was not present at any lengthy discussion such as Mr Patrick Stafford had described as having taken place prior to the signing of the contract in 1973.
Since I have rejected Mr Patrick Stafford’s evidence insofar as it conflicts with the testimony of Mr Bacon and Mr Mahony and with the documentation which was produced as having been made by Mr Bacon in the course of acting as solicitor for Mr James Mahony, it would be inconsistent if I were now to prefer Mr Patrick Stafford’s evidence to that of Mr Palmer which I have just epitomised. However in deference to the careful and extensive legal argument presented by Mr Barron on behalf of his client the plaintiff, I feel that I ought to examine the propositions which he has made as to the law affecting the relationship between the plaintiff and the members of the defendant firm concerned.
Based upon the assumption that Mr Patrick Stafford did have discussions with Mr Mahony and Mr Palmer in the course of which he obtained some information amounting to representations, innocent but mistaken, which induced him to purchase the premises, Mr Barron directs a legal argument founded in the first instance upon the doctrine of innocent misrepresentation and its consequences. Mr Barron relied chiefly upon the doctrine as expounded by the Court of Appeal in England in Esso Petroleum Co. Ltd v Mardon [1976] QB 801. In this case the Court of Appeal purported to found their judgment upon the decision of the House of Lords in Hedley Byrne & Co Ltd v Heller and Partners Ltd, the well known authority which expounded for the first time in a full way the question as to how far the duty to exercise care was imposed upon a person giving information or advice to another. It would, I think, be generally considered that the Court of Appeal in Esso v Mardon considerably extended the application of the principle which had been laid down in Hedley Byrne. The principle upon which this decision was based was summarised by Lord Denning MR at p. 820 as follows:
It seems to me that Hedley Byrne …, properly understood, covers this particular proposition: if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another — be it advice, information or opinion — with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side to enter into a contract with him, he is liable in damages.
Omrod LJ at p. 287, after analysing the principles which he said underlay the decision in Hedley Byrne, stated: *62
The parties were in the kind of relationship which is sufficient to give rise to a duty on the part of the plaintiffs. There is no magic in the phrase ‘special relationship’; it means no more than a relationship the nature of which is such that one party, for a variety of possible reasons, would be regarded by the law as under a duty of care to the other. In this case the plaintiff had all the expertise, experience and authority of a large and efficient organisation carrying on business of developing service stations to sell their petroleum through dealers who were expected to invest a substantial amount of capital in the business …. On the evidence they clearly assumed responsibility for the reliability of their own [estimated annual consumption].
Similar views were expressed by Shaw LJ and it is difficult to avoid the suspicion that the views of these learned judges were to some extent colured by the provisions of the English Misrepresentation Act of 1967 which was already law for some years at the date of the judgment but which had not been effective in 1963 at the date of the matters complained of by Mr Mardon the applicant.
Hedley Byrne is reported at [1964] AC 465. It is difficult to state compendiously the effect of this very important decision, but I think it may perhaps be summarised by adopting the words of Lord Devlin at p. 530. He is reported as saying:
I shall therefore content myself with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care. Such a relationship may be either general or particular. Examples of a general relationship are those of solicitor and client and of banker and customer …. There may well be others yet to be established. Where there is a general relationship of this sort, it is unnecessary to do more than prove its existence and the duty follows. Where, as in the present case, what is relied on is a particular relationship created ad hoc, it will be necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility.
He goes on in the next sentence to state an aspect of the doctrine which appears important in considering the present case, namely; ‘I regard this proposition as an application of the general conception of proximity’.
In the speech of Lord Morris there is to be found an analysis of Derry v Peek (1889) 14 App. Cas. 337, in the course of which he also referred to the speech of Lord Shaw in Nocton v Lord Ashburton [1914] AC 932, at p. 972:
… Once the relations of parties have been ascertained to be those in which a duty is laid upon one person of giving information or advice to another upon which that other is entitled to rely as the basis of a transaction, responsibility for error amounting to misrepresentation in any statement made will attach to the adviser or informer, although the information and advice have been given not fraudulently but in good faith.
Having discussed other speeches in Derry v Peek, Lord Morris went on to comment, [1964] AC 465, at p. 502:
The enquiry in the present case, and in similar cases, becomes, therefore, an enquiry as to whether there was a relationship between the parties which created a duty and, if so, whether such duty included a duty of care.
Lord Morris continued:
I consider that it follows that it should not be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise.
He follows this with an observation which might be thought to be of assistance *63 to the plaintiff in the present case:
Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful enquiry, a person takes upon himself to give information or advice to, or allow his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.
The force of this last observation, as I understand it, is that if advice has been given to Mr James Stafford which might reasonably have been expected to be passed on to or have come to the knowledge of his brother Mr Patrick Stafford and if Mr Patrick Stafford had placed reliance upon it, then the duty of care would have extended to him. The observation however clearly contemplates that there must be a person making the representation and another person to whom the representation is made or to whom it is likely to be conveyed.
In my view the application and extent of the doctrine of negligent although innocent misrepresentations giving rise to an action for damages have been correctly stated by Davitt P in Securities Trust Ltd v Hugh Moore and Alexander Ltd [1964] IR 417. Having at p. 421 stated his view that, contrary to the narrow interpretation formerly given to Derry v Peek, the law now provided that an action for damages might be based on innocent, that is non-fraudulent, but negligent misrepresentation, the learned judge went on to consider the then recent decision of Hedley Byrne. He stated:
The proposition that circumstances may create a relationship between two parties in which, if one seeks information from the other and is given it, that other is under a duty to take reasonable care to ensure that the information given is correct, has been accepted and applied in the case of Hedley Byrne & Co Ltd v Heller and Partners Ltd, recently decided by the House of Lords.
Having considered the circumstances in the case which he was then deciding, under which Mr Kevin Anderson, the chairman and managing director of the plaintiff company, had sought information from the defendant company, the learned judge pointed out that Mr Anderson, who had made the request, was a shareholder but that the plaintiff company had not then been registered as owner of any shares in the defendant company. Davitt J stated the plaintiff was entitled to the information and entitled to receive it personally qua member ; he was not entitled to receive it qua agent of the plaintiff company, and he later went on to say:
It seems to me that there was no relationship between the parties in this case[that is to say the plaintiff company and the defendant company] other than such as would exist between the defendant company and any person (other than Mr Anderson) who might chance to read the copy supplied to him; or, indeed, between that company and any members of the community at large, individual or corporate, who chanced to become aware of the last sentence in Article 155 of the defective reprint of the Memorandum of Articles.
This was the document which had given rise to the misrepresentation. The learned judge went on to say:
It can hardly be seriously contended that the defendant company owed a duty to the world at large to take care to avoid mistakes and printers’ errors in the reprint of their articles. In my opinion, counsel is correct in his submission that in this case the defendant company owed no duty to the plaintiff company to take care to ensure that the copy of the articles supplied to Mr Anderson was a correct copy.
*64
Adopting the principles thus laid down by Davitt P, I have come to the conclusion that in order to establish the liability for negligent or non-fraudulent misrepresentation giving rise to an action there must first of all be a person conveying the information or the representation relied upon; secondly, that there must be a person to whom that information is intended to be conveyed or to whom it might reasonably be expected that the information would be conveyed; thirdly, that the person must act upon such information or representation to his detriment so as to show that he is entitled to damages. It follows, I think, that if Mr James Stafford had been the plaintiff in the present case and had made out to the satisfaction of the court that misrepresentations had been made to him by the defendants or any member of the firm upon which he acted to his detriment relying upon their skill and experience, then he would have made out such a case. I do not think that this liability would extend to his brother Patrick, even if he had learned in the course of his various visits to the offices of the defendant firm the nature of the transaction which his brother James was conducting up to the date upon which the contract of sale was executed. In any event Mr Patrick Stafford has made no such case. His case is that he personally received express representation and advice upon certain facts from Mr Mahony and, to a lesser extent, Mr Palmer, upon which he did act to his detriment and suffered damages. In the view which I have taken as to the weight of the evidence it is clear that I cannot accept this contention, preferring as I do the evidence of Mr Mahony and Mr Palmer on these matters and in particular the evidence of Mr Bacon and the documentation which he prepared in the course of advising Mr James Stafford in the preparatory work for the sale. The action therefore must fail.
Hazylake Fashions Ltd v The Governor and Company of the Bank of Ireland
1987 No. 1941P
High Court
13 April 1989
[1989] I.L.R.M. 698
(Murphy J)
13 April 1989
MURPHY J
delivered his judgment on 13 April 1989 saying: Hazylake Fashions Ltd (to whom I shall refer as the company) commenced trading at Easkey in the County of Sligo in the month of January 1985. The business of the company consisted in the manufacture and sale of childrens clothing principally for the export market. The managing director of the company is and was at all material times Mr Jean Claude Fabien. Mr Fabien is a man of considerable commercial experience and in particular is and was familiar with bills of exchange and banking procedures.
From the time at which it commenced business at Easkey the company had a bank account with the defendants (to whom I shall refer as the bank) at their Sligo branch in Grattan Street. However the discounting of foreign bills of exchange was carried out on behalf of the company by the Bank Paribas in Luxembourg. In October 1985 Mr Fabien decided to explore the possibility of transferring the companys international banking business from the Paribas to the bank so that the Bank of Ireland would handle all of the companys banking requirements. As a result of that decision Mr Fabien met with Mr Eoin Crowley the manager of the Bank of Irelands International Banking Division at Galway. Mr Fabien and Mr Crowley are in agreement with regard to two matters discussed at their meeting. First, both parties agree that no reference was made to the discounting of unaccepted bills of exchange and, secondly, that the bank would require the company to procure export credit insurance from the Insurance Corporation of Ireland in accordance with a scheme operated by that insurance company. There was surprisingly little evidence as to what function the bank was being asked to commit itself to perform. No doubt it was intended that the bank should discount and collect bills on behalf of its customer but no evidence was directed towards showing that they undertook a commitment in that behalf. The scheme on which the parties embarked emerged more clearly from the documentation executed in connection with the Export Finance Insurance Scheme. That documentation shows that the bank had agreed to make advances to the company for up to 90% of the face value of certain bills of exchange drawn by the company and that the Insurance Corporation, subject to a variety of conditions and stipulations, guaranteed the payment of the full amount *700 of the advances up to an agreed stipulated limit of the aggregate amount outstanding at any given time. Clearly the bank was satisfied to make the advances partly on the security of the bills of exchange but more particularly on the basis of the guarantees provided by the Insurance Corporation of Ireland. I would infer, therefore, that the parties were in agreement that the bank would advance 90% of the full amount of all bills of exchange falling within the scheme and presented within the period covered by it subject of course to the stipulated limit of the revolving credit.
With regard to the issue whether the bank agreed at any time to discount or make advances against unaccepted bills of exchange Mr Crowley was adamant that this possibility was never discussed lest still agreed. He expressed his position graphically by saying that basically it would be unnatural for bankers to talk of unaccepted bills of exchange. In fact Mr Crowleys views are not supported by the export credit insurance documentation which defines an eligible instrument in such a way as would include both an accepted and unaccepted bill of exchange. This interpretation of the definition is reinforced by clause (1) of the guarantee itself which in paragraph (d) thereof imposes a condition that the bank at the date of the advance had no knowledge of any dishonour by non-acceptance.
Even more impressively the attention of Mr Crowley was drawn to a brochure issued by the Bank of Ireland under the title export finance scheme for non-capital goods which contains the following paragraph:
The scheme is intended to provide rapid post shipment finance to exporters at attractive interest rates. Interest rates in foreign currencies can be cheaper than Irish Pound rates and the borrowers under the scheme do not have an exchange risk. In addition, unless specifically excluded by I.C.I., the advance can be made against unaccepted bills or notes. This eliminates the necessity of having the bills/notes sent for acceptance prior to finance being provided.
Notwithstanding these conflicting viewpoints I am satisfied that the documentation as a whole (including in particular a letter dated 27 May 1986 from the Insurance Corporation of Ireland to the company to which futher reference will be made) makes it clear that the scheme to be operated in the present case was limited to accepted bills of exchange and that furthermore in the month of October 1985 both the bank and the company intended that it should be so limited.
Following the October meeting steps were taken to put the export insurance cover in place. The documentation was not completed until March 1986. The arrangement provided a guarantee to the bank for advances made between 1 March 1986 and 31 March 1987 up to a limit of advances not exceeding at any one time 20,000. The first five bills sent to the bank for discount and collection were received by it on 16 April 1986. It is significant to note that four of these bills related to goods that had been shipped nearly two months before the bills were forwarded to the bank. This seems to have been a fact which influenced the thinking of Mr Crowley in convening a further meeting with Mr Fabien which was held on 17 April 1986. Mr Crowley says that one point which he made at that meeting related to the delay in procuring payment on the bills. He was anxious that the bills would be dispatched the same time as the goods. However it was Mr Fabien himself who gave evidence of Mr Crowleys concern about the authentication of the signature of the *701 acceptor. Mr Crowley wanted the acceptance executed in the acceptors bank and that notification of the acceptance would be telexed direct to the international division in Galway. That this was so is fully supported by the documentation which the bank devised for the purpose of these transactions. Mr Crowley explained to Mr Fabien and to his office manager Miss Jackie Cunningham the documents that were required and the manner in which they should be completed. In fact he filled in in his own writing one set of documents to illustrate what was required. These included a document known as the direct collection letter which purported to emanate from the bank and was addressed to the drawees bankers. The letter referred to the bill in question and gave specific instructions with regard both to collection and payment. In the column dealing with collection instructions a specific requirement was to be inserted by the company requiring the addressee to notify acceptance by telex/swift to the Bank of Ireland at Eyre Square, Galway. Again additional payment instructions were included by the company at the instructions of Mr Crowley to remit the proceeds by the same procedure again to Eyre Square, Galway. This collection letter was carboned onto two copies. The original was entitled original mail, the first copy entitled file copy for bank and the second copy entitled copy for exporter.
Obviously it had been intended that the direct collection letter would be dispatched by the bank who would send a copy to their own customer and retain a copy for their own file. It appears as, Miss Commer explained, that some time towards the end of 1984 or the beginning of 1985 the international division had changed its system and had transferred to the client the task of communicating instructions to the drawee and its banker. In that way the client was sending out letters appearing to emanate from the bank though in fact completed and dispatched by the company. It seems to me that the evidence as to what took place at the meeting of 17 April 1986 and the contents of the documentation that followed on that meeting confirmed beyond any possibility of doubt that it was the intention of the bank to discount or make advances against duly accepted bills of exchange and not against bills of exchange which had not as yet been presented for acceptance. It seems to me impossible to believe that Mr Crowley would have taken such steps to ensure the authenticity or propriety of any particular acceptance if in fact he was prepared to contemplate making an advance against a bill which had not even been presented for acceptance.
The fact that the entire scheme related only to accepted bills of exchange was further underscored by the letter (already referred to) dated 27 May 1986 from the Insurance Corporation to the company by which the stipulated limit of the revolving credit was increased from 20,000 to 40,000. That letter indicated that the guarantee to the bank was in respect of advances made on foot of a bill of exchange drawn on and duly accepted by a buyer under the terms of a contract covered by the policy.
The bills delivered to the bank in the remainder of April 1986 and during May of the same year had already been processed under the earlier arrangement by which the client procured acceptance of the bill in a manner which was satisfactory to him *702 rather than to the satisfaction of the bank. It was not until the end of June 1986 that the new system came into operation. On the 26th of that month three unaccepted bills were forwarded to the international divison of the bank at Galway. It appears that the goods were shipped and the bill drawn at or about the same time. All three bills were discounted on 30 June. As the evidence was to the effect that it took on average seven days for communications from Easkey to reach the French banks concerned in the transactions and that then those banks had to contact their clients and procure execution of the acceptance it must have been clear to anybody who directed their minds to the issue that not only had the bills of exchange in question not been accepted but that they could not have been presented for acceptance at that time. In fact it would seem that only one of the three bills was ever accepted and that that occurred on 17 September 1986. That is to say nearly three months after the advance had been made. Between July and November 1986 twelve further unaccepted bills were presented and promptly, if not immediately, discounted by the bank in circumstances which clearly indicated that the bill could not have reached the drawee less still been accepted by him before the advance was made.
Having regard to the bargain between the parties as I have found it to be, why were these advances made prematurely? Was it the result of a bargain or a blunder?
In support of the proposition that there was some express or implied agreement that the bank would in fact discount unaccepted bills attention was drawn to that part of the evidence of Miss Cunningham where she said that Mr Crowley had asked her to contact one of his assistants, Miss Commer, as to the manner in which part of the documentation should be completed. The particular document was a form required for the purposes of the Exchange Control Acts and the evidence given by Miss Cunningham which appeared to be significant was that she had been told to insert as the drawdown date for advances to be made by the bank to the company a date three to four days next following the invoice date of the goods dispatched to the foreign customer. It was tentatively suggested that this indicated an intention by the bank to make advances within three to four days of receipt of the documentation and accordingly irrrespective of the fact that acceptance could not have been procured within that time span. In fact it turns out that the particular invoice date suggested by Miss Commer to Miss Cunningham was 27 February 1986 which was a date on which goods had been shipped by the company to a foreign buyer but it is likewise clear that this invoice related to goods in respect of which a bill of exchange had already been drawn and accepted by the drawee. In the circumstances I would attach little value to the evidence but without casting any doubt whatever on the integrity of either witness.
I am convinced that the bargain between the parties related to accepted bills only and that this agreement was never varied expressly or by implication and accordingly that the premature advances made by the bank and accepted by the company was due to an administrative error which was almost certainly caused by continuing the practice which had been established in relation to the system originally adopted between the parties when they had been dealing with notes accepted prior to dispatch for collection by the bank. No doubt the position was *703 exacerbated by the changes in banking procedure of which Miss Commer gave evidence and which took place at or about the same time.
There was some conflict between the evidence given by various witnesses as to how, when and by whom the error was discovered. I believe that Mr Crowley is correct when he says that he was informed of the error by his assistant manager on 27 November 1986. On that date in fact the international division of the bank received and discounted an unaccepted bill of exchange. However I believe that Mr Crowley is mistaken in saying that he phoned Mr Fabien in the week beginning 27 November 1986. Indeed that evidence is necessarily mistaken as 27 November 1986 was a Thursday and not a Monday. I think it is improbable that Mr Crowley had an opportunity to communicate with Mr Fabien before he dispatched to the bank the unaccepted bill drawn on 24 November 1986 and forwarded to the bank on 3 December 1986. Indeed it may have been the receipt of that bill of exchange on Friday 5 December which compelled Mr Crowley to communicate with Mr Fabien early in the following week on 8 or 9 December. Whilst, therefore, I take the view that the communication took place somewhat later than Mr Crowley believes, that it was considerably earlier than Mr Pat Burke, the manager of the Galway branch, was given to understand. Furthermore I accept that the initiative for the communication came from Mr Crowley rather than Mr Fabien. Again there is a difference between the parties as to the reaction of Mr Fabien to the news that a mistake had occurred in the past which had resulted in unaccepted bills being discounted and that for the future only accepted bills would be discounted with a consequent delay in making advances on foot thereof. Mr Crowley recalled Mr Fabiens attitude as being one of no problem whereas Mr Fabien himself says he got into a panic on hearing the news and advised Mr Crowley that it would be impossible for the company to do business without having cash available to it. I feel sure that Mr Fabien was indeed concerned, perhaps not immediately, but as soon as he appreciated the significance of the correct procedure. Indeed Mr Crowley did say that in subsequent discussions that Mr Fabien adopted his usual aggressive attitude.
I believe that Mr Fabien was more disappointed or concerned than aggrieved. I believe that he must have realized at some stage that the bank was applying its own system incorrectly and that the correction would necessarily place a greater strain on the companys cashflow which at that stage was stretched to the limit. Indeed the man with the real grievance was Mr Pat Burke the manager of the Bank of Ireland branch in Sligo who was not privy to the precise terms of the arrangement between the company and the international division. He had been permitting the company to draw on its current account in his branch in the expectation that funds would be forwarded to the branch by the credit division in Dublin shortly after the lodgment of the bills of exchange of which he was notified by his client.
After the mistake was discovered the bank declined to discount bills until acceptance was notified to them. However even at that stage they made a conscious decision to discount three unaccepted bills. This decision was taken by the credit division in Dublin for the purpose and with the effect of clearing the overdraft which *704 the company had accumulated on its account in the Sligo Branch.
Mr Fabien explained that as a result of cash shortages the company was forced to cease production as from 7 March 1987. In fact there is some ambiguity as to precisely what was meant by this statement. It would appear from his cross-examination that manufacturing production ceased but that the company continued to exploit its commercial connection by acting as agents for the sale of goods to its previous customers in France and elsewhere. To that extent the company may be said to have continued in business but to have arranged to have goods made up for it by another manufacturer.
In these circumstances the plaintiff company claimed damages against the defendant bank on the follows bases:
1. That there was a contract between the company and the bank under which the bank agreed to discount unaccepted bills of exchange and to continue doing so until the agreement was terminated by not less than six months notice.
2. That the defendants were negligent in failing to advise the plaintiff in April 1986 of the delay which would result from the banks requirement that the bills should be accepted in the manner required by the bank before they were discounted by it.
3. That having regard to the particular relationship between the company and the bank that the bank would have been liable to the company for any statement made negligently which resulted in economic damage to the company. In that context it was contended that the actions of the bank in discounting unaccepted cheques within three to four days of their receipt amounted to an implied statement.
The first of these arguments fails for the reason that I have already decided that there was not in fact at any time any contract by the bank to discount unaccepted bills of exchange less still to continue that procedure for any particular period of time.
The second argument is based upon an amendment to the pleadings by the insertion of an additional paragraph in the particulars in the following terms:
(g) Failed to inform or advise the plaintiff that in the event of the defendant discounting only accepted bills of exchange there would be delays between pre- sentation of copy bill of exchange and discounting of up to fourteen weeks.
Even assuming the bank did have an obligation to advise the company as to the effect of the procedure the evidence did not, as I understand it, establish that the procedure itself was such as would involve the alleged delay or indeed that a delay of fourteen weeks subsequent to presentation of the bill would be material or indeed different from the delays which would otherwise occur in the processing of the transaction. What the evidence did make clear was that the duty to obtain the acceptance was imposed on the company. That it was the company who drew the bill of exchange and dispatched it with an appropriate direct collection letter to the drawees bankers. Accordingly the only function of the bank was to receive by telex/swift notice of acceptance from the drawees bankers. There was no suggestion that there was or indeed could have been any delay under that heading. Clearly there was some delay in sending the drawn bill to the continental bank and *705 it was reasonable to suppose there would be some delay in the continental bank procuring execution by their customer but the whole purpose of the altered procedure, as I understand it, was to leave this aspect of the transaction under the direct control of the banks client. The company had the opportunity of pressing its customer to complete the transaction with minimum delay. I do not see how the bank could have forecast how successful the company would have been in procuring the co-operation of its customers or to give any advice in that regard.
It seems to me that it would be impossible to extend the decision in Hedley Byrne and Co. Ltd v Heller and Partners Ltd [1964] AC 465 or indeed the subsequent Irish decision in Securities Trust Ltd v Hugh Moore and Alexander Ltd [1964] IR 417 to the facts of the present case.
Where Hedley Byrne v Heller extended the concept of negligent actions causing economic loss to negligent misstatements having the same result this case would involve the further extension of the law to include implied statements. But even if that extension is justifiable it is difficult to extract from the actions of the parties the statement which is said to have been made negligently and caused economic loss. It could not be contended that the bank negligently or otherwise led the company to believe that the bills were accepted before they were discounted. Manifestly this was impossible having regard to the dates on which the various transactions took place. If it is suggested that the premature discounting of the bills was a representation that this procedure would continue then effectively the company is contending that the original contract had been amended and there is no evidence (or indeed argument) to support that conclusion. The reality of the matter is that the bank acted negligently in the sense that they failed to take appropriate steps to safeguard their own interests. They did not await notification of acceptance before discounting and they may have lost the protection of the insurance cover as a result. In my view they were making no statement express or implied to the company. The company was simply the beneficiary of an unfortunate administrative error made within the banking system. I accept that the correction of this error on very short notice to the company must have added to the serious financial problems which it was then undergoing but I cannot see that the bank acted in breach of its duty by making a mistake in relation to the conduct of its own business or in correcting the error when it was identified. In the circumstances it seems to me that this argument too must fail.
Finally I would like to add that the evidence given in the case did not cast any reflection on the conduct of Mr Fabien. All of the bills presented to the bank whether accepted or not were duly paid and the bank was reimbursed the full amount of all advances made by it together with interest and all of the costs and charges to which they were entitled.
The fact that the advances were made to the company at an earlier date than would have been appropriate may have had advantages for Mr Fabien but it is to be noted that he paid interest on those advances from the date on which they were made so that the bank was as much a beneficiary from the premature payments as was the company. It is particularly important to stress this aspect of the matter as, *706 unhappily, an item was included in an RTE mid-day news programme during the course of the hearing an item concerning the affairs of the company which gravely concerned the plaintiffs having regard to certain matters stated or implied therein. Those imputations were in fact entirely irrelevant to any of the matters which I was called upon to decide for the purposes of this judgment.
T.E. Potterton Ltd v Northern Bank Ltd
1986 No. 7503P
High Court
19 June 1992
[1993] I.L.R.M. 225
(O’Hanlon J)
19 June 1992
Subject: Banking and finance
Keywords: Bankers’ duties; Cheques; Payees
Bank—Cheque—Bank returning cheque indicating that alteration required drawer’s confirmation—Payee accepting subsequent cheque—Plaintiff not receiving payment in full for earlier cheque—Whether bank under any duty to payee—Whether bank had embarked on course of conduct calculated to deceive payee
Facts
The plaintiff carries on business in auctioneering and livestock sales. Tansey Farms Ltd (the company) was a frequent purchaser of cattle at the plaintiff’s marts for some years up to 1985. Payments for such purchases were made by means of cheques drawn on the company’s account with the defendant bank. At a sale held on 28 November 1985, the company purchased cattle for the sum of £39,983. A post-dated cheque drawn on the defendant bank and dated 6 December 1985 was offered in payment. This cheque was presented for payment on 4 December 1985 and in due course was sent to the defendant bank for clearance. The cheque was returned by the defendant on 9 December 1985 marked ‘refer to drawer present again alteration req’s drawer’s conf.’, which indicated that an alteration thereon required the drawer’s confirmation. On 12 December 1985, the cheque was presented for clearance again, without alteration and without seeking the drawer’s confirmation. The cheque was again returned bearing the original words but with a line drawn through the words ‘present again’. In the intervening period, the plaintiff had sold a further consignment of cattle to the company and had been paid on 6 December by another post-dated cheque in the sum of £13,298 and dated 13 December 1985. This second cheque was presented for payment and was returned by the defendant marked ‘refer to drawer’. The plaintiff did not receive any payment on foot of either cheque. The company went into liquidation in July 1986. There was evidence of a flexible procedure adopted by the defendant when paying out monies from its customer’s account in circumstances where the permitted overdraft figure was reached. Evidence was given that during the relevant period of December 1985 the defendant had paid a substantial amount of monies on foot of cheques issued by the company. The plaintiff issued proceedings against the defendant for negligence and breach of duty arising out of the communication made by the defendant when declining to make payment on foot of the cheque which the plaintiff claims amounted to a negligent misrepresentation of the true position and induced it to act to its detriment.
Held, by O’Hanlon J in allowing the plaintiff’s claim that:
(1) The general rule that a paying bank owes no duty to the payee of a cheque who is not its customer is subject to qualification if the bank deliberately *226 embarks on a course of conduct for its own purposes which is calculated to deceive the payee of the cheque in a manner which may result in financial loss to such payee, and in circumstances where there is no lawful justification for such action on the part of the bank;
(2) There was no justification for returning the first cheque uncashed on the basis that it contained an alteration which could reasonably be said to have required the drawer’s confirmation.
(3) The reference to the alteration was a device invented by the defendant to extricate it from an awkward situation where cheques coming in for payment could not be met by the account but the defendant was unwilling to formally dishonour the cheques as it believed it was likely to be put in funds in due course.
(4) The words written on the cheque when it was returned were calculated to and had the effect of, lulling the plaintiff into a false sense of security and led it to believe that payment was being withheld for some technical reason viz the manner in which the cheque had been written.
(5) By communicating its reason for refusing to honour the cheque the defendant assumed an obligation to act honestly and carefully and not to deceive the plaintiff by putting forward a spurious reason.
(6) The defendant breached its obligation to reply in a careful and honest manner once it took the course of indicating its reason for refusing payment.
Cases referred to in judgment
Bank of England v Vagliano Bros [1891] AC 107
Bank of Ireland v Smith [1966] IR 646
Dublin Port & Docks Board v Bank of Ireland [1976] IR 118
Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465
Robinson v National Bank of Scotland Ltd (1916) SC 154
Representation
Brian McCracken SC and Vincent Foley for the plaintiff
Eoghan Fitzsimons SC and Sunniva McDonagh for the defendant
O’HANLON J
delivered his judgment on 19 June 1992 saying: The plaintiff company carries on business in auctioneering and livestock sales, with marts at Trim and Delvin, Co. Meath, and mart sales are held at Delvin on Thursday of each week. Liam McMahon, carrying on business through the medium of a limited liability company, Tansey Farms Ltd, with farms at Roslea, Co. Fermanagh, and near Clones, Co. Monaghan, was a purchaser of cattle at the plaintiff’s marts for several years leading up to the year 1985 and throughout that year. At the relevant times, such purchases of cattle were paid for by means of cheques drawn upon the account of Tansey Farms Ltd with Northern Bank Ltd, The Diamond, Clones, Co. Monaghan.
At a sale held by the plaintiff on 28 November 1985; the said Liam McMahon acting on behalf of his company, Tansey Farms Ltd, purchased cattle to the value of £39,983 and gave in payment therefor a post-dated cheque drawn on the *227 defendant bank for that sum, and bearing the date 6 December 1985.
The said cheque was presented for payment by the plaintiff to its own bank, Ulster Bank Ltd, on 4 December 1985 and was sent on for clearance to the defendant bank but was returned by the defendant bank on 9 December 1985, marked ‘refer to drawer present again alteration req’s drawer’s conf.’ (being shorthand for ‘alteration requires drawer’s confirmation’).
The cheque was again presented for clearance on the plaintiff’s behalf by the plaintiff’s bank, Ulster Bank Ltd, without alteration and without seeking drawer’s confirmation of any part of the writing on the cheque, on 12 December 1985, and on this occasion it was returned by the defendant bearing the original words, ‘refer to drawer’ and ‘alteration req’s drawer’s conf.’ but with a line drawn through the words ‘present again’ which formed part of the original message when the cheque was first returned.
Mr Edward Potterton, a director of the plaintiff company, said they were not too concerned when the cheque came back a second time. He contacted Mr McLoughlin, manager of the Clones Branch of the defendant bank and was told by him that he should go and see Mr Liam McMahon. He did so, and was told by him that ‘there was a problem’. In the meantime a further consignment of cattle had been sold to Tansey Farms Ltd on 5 December and were paid for by cheque dated 13 December 1985, which was handed to the plaintiff on 6 December 1985. The amount involved in this case was £13,298 and on being presented for payment it was returned marked ‘refer to drawer’.
The plaintiff company never received any payment on foot of either cheque. Proceedings were instituted against Tansey Farms Ltd on 23 December 1985, and judgment was obtained against them in May 1986, but the company went into liquidation in July 1986, and nothing was ever recovered on foot of the judgment. In this situation the present proceedings were commenced against the defendant claiming that the loss which had been sustained by the plaintiff was attributable to negligence and breach of duty on the part of the defendant in the manner in which it had dealt with the cheque dated 6 December 1985, which was presented to it for payment on or about 9 December 1985 and arising out of its refusal or failure to clear same within a reasonable period of time.
The defendant denies that it was guilty of any negligence or breach of duty and denies that it owed any duty of care to the plaintiff in the circumstances of the present case. There is a plea that no loss or damage was caused to the plaintiff by the matters alleged against the defendant and a plea that even if there was negligence on the part of the defendant (which is denied) the plaintiff was guilty of contributory negligence.
Edward Potterton, in the course of his evidence, claimed that the defendant, during the critical period spanning the early weeks of December 1985, actually paid out sums in the region of £80,000 on foot of cheques presented for payment against the Tansey Farms Ltd account during that period.
*228
Mr McLoughlin, manager of the Clones Branch of the defendant bank at the time, said that in 1985 Tansey Farms Ltd had permission to overdraw their account up to a limit of £40,000. More latitude than this was allowed from time to time when the company was able to show that there were payments to come in which could be relied upon to arrive, such as VAT and MCA credits. Mr McMahon had a practice of telephoning the bank on a weekly basis to ask what cheques had come in for payment and to inform the bank what was due to the company from the meat factories. ‘Depending on their assurances we would pay or send them back’, Mr McLoughlin said.
He said that the cheque for £39,983 in favour of the plaintiff came in on Friday, 6 December 1985. Two other cheques came in on the same day (or on the previous day) — one for about £17,000 and one for about £3,000. As the account could not meet them all, they were held over until the following Monday. Two cheques which had come in on Thursday were held over and paid on the Friday.
The witness then said (contrary to his earlier evidence) that the cheques held over to Monday were four in number — for the following amounts — £39,983; £37,642; £3,956; £340. A decision was taken to pay the three smaller amounts and to return the largest cheque with two separate indorsements. He said that the indorsement ‘refer to drawer — present again’ should have conveyed to the plaintiff that there were insufficient funds in the account to meet the cheque. By the time the cheque was again presented for payment around 12 or 13 December a flood of cheques had come in; funds were still insufficient; the words ‘present again’ were struck out and the cheque was returned marked ‘refer to drawer alteration req’s drawer’s conf.’ He explained that the last part of the message referred to the fact that one of the words on the cheque, being the word ‘nine’, was written in block or printed letters whereas the other words were in ordinary script.
Mr Anderson, who was assistant manager at the time, said that the cheque for £39,983 came in on the morning of Friday, 6 December, and if paid at that time would have put the account £9,000 beyond the permitted overdraft limit of £40,000. A decision was taken to pay the two smaller cheques, in accordance with normal banking practice.
A number of matters arise for consideration in relation to the issue of liability in the case. In the first place I have to consider whether there was any justification for returning the cheque uncashed on the basis that it contained an alteration which could reasonably be said to have required the drawer’s confirmation before it would be safe for the drawer’s bank to cash it.
In my opinion there was no justification for returning the cheque uncashed on this basis. The word ‘nine’ is, in fact, written in block letters and the other words in ordinary script, but it has all the appearance of having been written at the same time, and with the same writing instrument, and by the same hand as *229 all the rest of the writing on the cheque.
Furthermore, evidence was given by John Pearson, a farmer who dealt with Tansey Farms Ltd, and likewise by Liam McMahon, of Roscommon Co-Op Marts Ltd, who also had dealings with that company, each of whom had received cheques from the company in which the same word, ‘nine’ had been written in block letters with the remaining words in ordinary script, on earlier dates in 1985, and which had been cleared by the defendant bank without question, on being presented for payment.
I have come to the conclusion, on the evidence in the case, that the query raised by the defendant about an alteration requiring drawer’s confirmation was merely a device invented to extricate the defendant from an awkward situation where more cheques were coming in for payment than the account could meet yet they were unwilling to formally dishonour their customer’s cheques because of their belief (based on previous experience), that they were likely to be put in funds if more time were given for the purpose.
I believe that Tansey Farms Ltd had been allowed to operate their account in a rather flexible manner for a considerable period prior to the final collapse of the company but there was always a danger that the latitude given by the bank might ultimately result in prejudice to the creditors of the company.
I do not accept the proposition put forward by the bank witnesses that the words endorsed on the cheque when it was first returned should have conveyed to the plaintiff two different messages — that there were insufficient funds in the account to meet the cheque, and also that the writing on the cheque required confirmation by the drawer.
I am of opinion that the words written in when returning the cheque unpaid were calculated to, and did, lull the payee into a false sense of security and led the plaintiff to believe that payment was only being withheld for some technical reason having to do with the manner in which the cheque had been written. If this were, in fact, a cause of concern to the bank they could have cleared it up immediately by means of a simple one-minute telephone call to their own customer.
While a bank is generally considered not to owe any duty to someone who is not its customer when a cheque is presented for payment, I think this general rule must be subject to qualification if the bank deliberately embarks on a course of conduct for its own purposes which is calculated to deceive the payee of the cheque in a manner which may result in financial loss to such payee, and when there is no lawful justification for such action on the part of the bank.
The general rule that a paying bank owes no duty to the payee of a cheque was re-stated by the Supreme Court in the case of Dublin Port & Docks Board v Bank of Ireland [1976] IR 118. Kenny J said at p. 141:
With the exception of claims arising under s. 74 of the Bills of Exchange Act , or on specially crossed cheques (s. 79(2) of that Act) or on cheques marked good by the paying bank, the general principle is that a payee named in a cheque has no right of action against the bank on which the cheque is drawn if the cheque is dishonoured: Hart’s Law of Banking , 4th ed., p. 340.
The court was there concerned with the obligation of the bank on which the cheque was drawn to make payment on foot of the cheque and as to the order in which cheques were to be paid when the total number presented for payment exceeded the funds available to meet them.
A different problem arises for resolution in the present case where the claim is based, not on the failure of the defendant bank to pay on foot of the cheque when presented, but rather on the message communicated by the defendant to the plaintiff’s bank as the presenting bank, and thereby to the plaintiff also, when declining to make payment on foot of the cheque. The plaintiff claims that this message giving the alleged reason why the cheque was then being dishonoured, amounted to a negligent misrepresentation of the true situation and induced the plaintiff to act to its detriment or to forbear from taking steps for its own protection which it would have taken had the true position been made known.
A banker is bound to pay cheques drawn on him by a customer in legal form provided he has in his hands at the time sufficient and available funds for the purpose, or provided the cheques are within the limits of an agreed overdraft. He must either pay cheques or refuse payment at once; a request to re-present amounts to dishonour. ( Halsbury, Laws of England , 4th ed., vol. 2 para. 163; Bank of England v Vagliano Bros [1891] AC 107, 141, 157).
The situations in which liability in damages can arise in respect of negligent misrepresentation or otherwise in respect of negligent misstatement have been considered in a number of cases in recent decades, both here and in the United Kingdom.
In Bank of Ireland v Smith [1966] IR 646, Kenny J, then sitting as a High Court judge, was dealing with a situation where the vendors in a court sale acting through auctioneers as agents, published an advertisement for the lands to be sold which was erroneous in a material respect in the description given of the property. The learned judge held that the advertisement was a representation which was incorrect, although made innocently and honestly.
In these circumstances he held that it would be against conscience that the vendor in a court sale should not be bound by a representation made by his agent in connection with that sale, and further held that the purchaser was entitled to recover damages for breach of warranty against the vendors.
Kenny J also considered the alternative claim put forward that an auctioneer acting for a vendor should anticipate that any statements made by him about the property will be relied on by the purchaser and that he, therefore, owes a duty of care to the purchaser and is liable in damages to him if the statement was *231 incorrect and was made carelessly. As he had already concluded that the auctioneers’ statement was made honestly and innocently and without negligence on their part, this part of his judgment must, in my opinion, be regarded as obiter dicta.
He said at p. 660:
In my opinion, the decision in Hedley Byrne & Co. Ltd v Heller v Partners Ltd does not give any support to this startling proposition. It decides that, if a person seeks information from another in circumstances in which a reasonable man would know that his judgment is being relied on, the person giving the information must use reasonable care to ensure that his answer is correct, and if he does not do so, he is liable in damages: but the relationship between the person seeking the information and the person giving it, if not fiduciary or arising out of a contract for consideration, must be, to use the words of Lord Devlin, ‘equivalent to contract’ before any liability can arise … that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.
In the case of Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465, referred to by Kenny J, the scope of liability for negligent misstatement is however, stated in a more ample manner in the speech of Lord Reid than in the passage taken from the speech of Lord Devlin. Lord Reid stated the position as follows at p. 483:
It seems to me that there is good sense behind our present law that in general an innocent but negligent misrepresentation gives no cause of action. There must be something more than the mere misstatement. I therefore turn to the authorities to see what more is required. The most natural requirement would be that expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility, and that appears to me not to conflict with any authority which is binding on this House. Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty …. Then there are cases where a person does not merely make a statement but performs a gratuitous service. I do not intend to examine the cases about that, but at least they show that in some cases that person owes a duty of care apart from any contract, and to that extent they pave the way to holding that there can be a duty of care in making a statement of fact or opinion which is independent of contract.
Lord Reid then refers to a number of decided cases concluding with Lord Haldane’s judgment in Robinson v National Bank of Scotland (1916) SC 154, and continues:
This passage makes it clear that Lord Haldane did not think that a duty to take care must be limited to cases of fiduciary relationship in the narrow sense of *232 relationship which had been recognised by the Court of Chancery as being of a fiduciary character. He speaks of other special relationships, and I can see no logical stopping place short of all those relationships where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him. I say ‘ought to have known’ because in questions of negligence we now apply the objective standard of what the reasonable man would have done.
A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought; or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require; or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.
See also what was said by Lord Morris of Borth-y-Gest, with whose statement of the law Lord Hudson expressed agreement.
The question then arises in every case where negligent misrepresentation or negligent misstatement is put forward as the cause of action, whether there existed between the parties some relationship based on contract, express or implied, or some other special relationship of the type referred to by Lord Reid which can give rise to liability in damages for economic loss attributable to the fact that the plaintiff acted on the faith of the representation made by the defendant.
Significant developments in the law of negligence have taken place since the case of Hedley Byrne & Co. Ltd v Heller & Partners Ltd was decided and since its effect was interpreted by Kenny J in Bank of Ireland v Smith not least in the present area of negligent misrepresentation and negligent misstatement, as noted in McMahon & Binchy, Irish Law of Torts and the casebook forming a companion volume to that excellent textbook.
If the vendors in Bank of Ireland v Smith had left the jurisdiction for an unknown destination taking with them the entire proceeds of sale, and it was found that the auctioneers had indeed been guilty of negligence in the particulars they gave of the property to be sold, I do not think the court would any longer regard it as a ‘startling proposition’ if the hapless purchaser sought to recover some of his loss as against the negligent auctioneers.
Turning to the present case, when the plaintiff through its own bank presented the cheque drawn on the Tansey Farms Ltd account for payment to the defendant *233 bank, the defendant had the ordinary banker’s obligation to pay the cheque forthwith if having at the time sufficient and available funds for the purpose or provided the cheque was within the limits of the agreed overdraft. Otherwise there was an obligation on the defendant to refuse payment at once. If this had been done in an unqualified manner it would have had the effect of immediately alerting the plaintiff to the inability of the company which had drawn the cheque to meet its liabilities and the plaintiff would have been put in the position of having to take whatever steps were open to it to secure payment and to take any other measures that could be taken for its own protection. No liability would have attached to the defendant in such circumstances.
The defendant elected to go further, however, and took it upon itself to communicate to the plaintiff its reason for refusing to honour the cheque at that point in time. In doing this I consider that it assumed an obligation to act honestly and carefully and not to deceive the plaintiff by putting forward a reason which was not the true reason, but was a spurious reason (as alleged in the statement of claim in the case, and as supported by the evidence adduced on behalf of the plaintiff).
This, in my opinion, brings the case within the four walls of the type of situation envisaged in the last paragraph quoted from the speech of Lord Reid in the Hedley Byrne case, (assuming it is still necessary to do so), where his Lordship deals with the three options open to a reasonable man volunteering information or advice to another person in the knowledge that his skill and judgment were being relied on and that the other person was trusting him to exercise such a degree of care as the circumstances required.
If answering without qualification and without disclaimer of responsibility in such circumstances ‘he must … be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require’.
I hold that the defendant was in breach of the obligation which arose in the particular circumstances of this case to reply in a careful and honest manner once it took the course of indicating its reason for refusing payment on foot of the cheque, and that the plaintiff was thereby caused economic loss, and I decide the issue of liability in favour of the plaintiff and against the defendant.
This leaves for consideration the issue of damages, which is one fraught with difficulty. What would have been the outcome had the defendant ‘come clean’ and sent back the cheque immediately with an endorsement conveying clearly that there were no funds to meet it?
Mr McMahon of Tansey Farms Ltd said that at times the bank had allowed him to overdraw up as far as £73,000 depending on how many stock he had on hand from time to time and that he had a lot on hand in November and December. He continued: ‘If Mr Potterton’s cheque had been ‘bounced’ on the 10/11 December, I am sure he would make me fix up before he accepted another *234 cheque’ … ‘I would say some of his cattle were still there.’
Mr Potterton said in evidence that ‘if there were no funds I would have asked McMahon for the cattle back — they were still ours until the cheque was cleared … We would have followed up the second cheque a lot quicker had we known this would not be met’.
The bank accounts for Tansey Farms Ltd which were produced in evidence show that substantial credits came in up to 17 December 1985, and equally substantial payments were made out of the account up to and including that date, with the account ultimately being overdrawn up to a figure of £45,314.59 as of 17 January 1986. In early December 1985, it was overdrawn up to a figure of £65,114.54 as of 3 December. Mr McMahon said that when he was in a position to make lodgments, people came in and got paid.
This conveys to me that when individual creditors took an aggressive line with the debtor there were occasions when they would accompany Mr McMahon to the bank when he was making a lodgment and make sure they got payment there and then, thus getting in ahead of the remaining body of creditors who were left without any remedy when the company finally went to the wall.
I am of opinion that had the critical state of Mr McMahon’s affairs been brought home to the plaintiff as soon as might have been expected had the defendant been frank and open in the way they dealt with the cheque when presented for payment, the plaintiff would have taken action immediately and applied the maximum pressure to Mr McMahon to pay up, either by apportioning some of whatever moneys were still available to him to their claim, and/or by returning any of their stock which still remained in his possession.
By these means, while it is highly unlikely that the plaintiff would ever have recovered the full amount of their claim, I think it is likely that something substantial would in all probability have been salvaged from the wreck of Tansey Farms Ltd, and I assess that figure at £20,000. I am also having regard to what I regard as a probability that had the bank not availed of the device they made use of in order to postpone the day of reckoning in relation to the cheque drawn in favour of the plaintiff, they would have had second thoughts about paying out in full four other cheques presented contemporaneously and totalling in excess of £40,000 while leaving the plaintiff high and dry with no payment whatever.
On this basis I find the defendant is liable in negligence and breach of duty to the plaintiff on foot of the plaintiff’s claim in these proceedings with no finding of contributory negligence against the plaintiff and I assess damages in favour of the plaintiff in the aforementioned sum of £20,000. I also award the plaintiff interest on that sum pursuant to the provisions of the Courts Act 1981, but as the plaintiff has not been very diligent in prosecuting its claim, I will direct that interest should run from 21 October 1989, being the date of expiry of the notice of intention to proceed dated 21 September 1989.
Kelly v Boland
John V. Kelly, Peter J. Murphy, Brendan J. Murray, Peter A. Farrelly, Charles A. Lorigan and Patrick J. King v Harry Boland, Frank Donnelly, Paul Carty, Stan McHugh, Denis Mehigan, Michael Morris, Michael McMahon and James Stewart (Trading as Haughey Boland & Co)
1983 No. 3190P
High Court
30 July 1985
[1989] I.L.R.M. 373
(Lardner J)
LARDNER J
delivered his judgment on 30 July 1985 saying: In this action the plaintiffs claim damages for negligent misrepresentation and negligence by the defendants in the negotiations leading to the purchase by the plaintiffs of the assets and business undertaking of Royal Tara China Ltd by a written agreement dated 4 November 1977 for the sum of £380,000 and in the preparation of that company’s accounts, which were made available to the plaintiffs during negotiations, for the accounting periods 31 December 1973 to 31 December 1976 inclusive.
The plaintiffs are a group of businessmen who in 1977 were shareholders in and directors of Cavan Crystal Ltd, which manufactured crystal glassware. This company commenced business about 12 to 14 years ago and was described by Mr Brendan Murray, the third plaintiff, as going quite well in 1977, having established through its sales organisation a satisfactory trade in Ireland and abroad. Early in 1977 the plaintiffs were considering diversification into another product which would be complementary to crystal glassware and had concluded that fine bone china fulfilled this requirement. They learned that Royal Tara China Ltd, a company based in Galway, was the only maker of such china in Ireland. This company had been incorporated in 1953 and had since been owned by a Mr Kerry O’Sullilvan and his wife. In 1977 and previous years Mr O’Sullivan was managing director and was responsible for both production and sales.
The auditor of Royal Tara China Ltd, from its incorporation was Mr Stan McHugh, the third defendant, and the other defendants were at the date of the matters complained of his partners in the firm of Haughey Boland, well known chartered accountants.
Mr Kerry O’Sullivan happened to be an acquaintance of Mr Peter J Murphy (the second plaintiff) the managing director of Cavan Crystal Ltd. In the early March *375 1977 Mr Brendan Murphy (another director of Cavan Crystal Ltd) and Mr Peter Murphy met Mr and Mrs O’Sullivan in Galway by appointment with the object of asking Mr O’Sullivan for advice and to inquire if he would be interested to act as a partner or consultant in the proposed new business. At this time the plaintiffs were considering constructing a new factory for the manufacture of bone china in Cavan. The meeting with the O’Sullivans was a brief one. Mr O’Sullivan was a sick man, suffering from a terminal illness though he was enthusiastic when he heard the plaintiff’s plans and willing to be helpful. Shortly after this Mr O’Sullivan died and the plaintiffs learned that Royal Tara China Ltd was for sale. Mr Murphy went to the funneral in Galway and shortly after that by a letter dated 16 March Mrs O’Sullivan posted two copies of recent accounts of the company to Mr Murphy. Subsequently in April additional accounts for some but not all years from 1967 to 1976 were sent by Mrs O’Sullivan to Mr Murphy. Within two weeks of the funneral Mr Murphy and Mr Murray twice visited the factory and subsequently visited it on numerous other occasions with Mrs O’Sullivan. Also present were Mr Morris, who had technical knowledge and skill as a potter and had been employed by Royal Tara China for some months previously to act as a consultant, and Mr Sean Keane, who was employed as accountant by that L.C. company. On several occasions Mr Murphy saw the factory in operation. His object was to obtain as much information as he could about Royal Tara China Ltd. By mid-April Mr Murphy and Mr Murray had examined the accounts and Mr Murphy had prepared his analysis and summary of the accounts he had received from Mrs O’Sullivan, which included the accounts for the years 1967, 1968, 1972, 1973, 1974, 1975 and 1976. At this time the 1976 audited accounts had not yet been prepared, and the accounts for the year ended 31 December 1976, which were given by Mrs O’Sullivan to Mr Murphy and Mr Murray, were internal company accounts prepared by the company’s accountant, Mr Sean Keane and showed a trading loss of £6,084. Subsequently in June the plaintiffs received the draft accounts for the year 1976 which were as yet uncertified but I will revert to this later in my judgment. These draft accounts for the year 1976 recorded a net trading profit for the year of £946 and this figure became known to Mr Murphy, and he adjusted the figures on his summary accordingly.
It is clear from the evidence that up to the end of July, Mr Murphy and Mr Murray visited Galway on a number of occasions and had discussions with Mrs O’Sullivan. At first they said she seemed interested in having the purchase price paid by a substantial initial payment with the balance payable by instalments over a number of years. Mr Murphy and Mr Murray went away and worked out figures and then returned and put them before Mrs O’Sulllivan. Mr Murphy says that when they made a proposal (and there was more than one) Mrs O’Sullivan said she would have to discuss it with Mr McHugh. He says she changed her mind from meeting to meeting as they adjusted their proposals or offers. None of the proposals made in the early summer of 1976 was acceptable to Mrs O’Sullivan.
The involvement of Mr Stan McHugh, the fourth defendant, with Mr Murray seems to have first occurred in the month of May 1977. He had been introduced to Mr Murphy when he was in Galway for the audit in April 1976 and understood at *376 that time that a sale by the O’Sullivans was a possibility. Then in May Mr Murray, whom Mr McHugh had not met before, called late in the day to Mr McHugh’s office at Amiens Street in Dublin. He said he had made an offer to Mrs O’Sullivan some days before. They had a long conversation at the office. As it was late Mr McHugh invited him to a meal in the Hibernian Hotel and there they continued their discussion. Mr Murray says they discussed the total picture that Mr McHugh said the company was doing very well and that the O’Sullivans were doing well out of it; that for some time Mr O’Sullivan had not been able to look after the business and the results on the accounts were still quite good; that they did not have the accounts at dinner and did not examine the figures at that meeting. He says Mr McHugh told him he was auditor and director for many years and had a good insight into the company and that he, Mr Murray, took what McHugh said in good faith. During the trial the plaintiffs sought to rely on some of these statements alleged to have been made by Mr McHugh as warranties.
Mr McHugh’s recollection of this meeting was that Mr Murray said he had made an offer to Mrs O’Sullivan some days before and they discussed it but he had made no offer to Mr McHugh. Mr McHugh agrees that he might have said that the O’Sullivans were doing well out of the business but he said he did not discuss specific terms of a purchase.
Following this, on 26 May Mr Murray and Mr McHugh spoke on the telephone. Mr Murray was going down to Galway that day with what he called a ‘package offer’ to present to Mrs O’Sullivan. According to Mr McHugh that was the last meeting with Mr Murray until 4 November 1977 when the contract to purchase was signed. There is a conflict of evidence as to the number of times Mr Murray and/or Mr Murphy met Mr McHugh before 4 November 1977 when a contract was entered into. Mr Murphy says they met on a number of other occasions, some of them in Galway. He has no records of such meetings and his diary does not record any meetings. Mr McHugh said apart from the first introduction to Mr Murphy in April in Galway, his only meeting with Mr Murphy prior to 4 November was on the occasion in May when Murray called to his office and subsequently dined with him. On this aspect I think Mr McHugh’s recollection is more accurate and I accept his evidence as to their meetings. There was however an exchange of letters between Mr McHugh and Mr Murphy following Mr Murray’s visit to Galway. By letter of 13 June 1977 to Mr Murphy, Mr McHugh wrote:
On Thursday last and subsequently I had brief conversations with Mrs O’Sulllivan in which she referred to your visit to Galway last week. She stated that she did not fully understand or remember clearly the precise figures which you mentioned on the previous day. I understood her to say that she had asked you to put an offer in writing and on this understanding I have been asked by her to write to you to make the formal request. You will appreciate that we have other parties interested in the purchase of the business as a going concern through the purchase of the shares in Royal Tara China Ltd. As I see it between your good self and Mr Murray you will by now have acquired all the information which you need to enable you to make a formal offer for the purchase of the entire share capital.
To this letter Mr Murphy repled on 23 June in the following terms: *377
This is a follow up to your letter of the 13th instant and my subsequent telephone call. From our point of view we have already decided to set up a Bone China Factory and the original idea was to set up a new plant in Cavan. We did not know at that stage Royal Tara was on the market. As Royal Tara is now on the market we are naturally interested.
The negotiations to date have been really unfortunate as in proposing a long term payment we understood that this was acceptable to Mrs O’Sullivan. However, many things have happened since then so we had better start again. Since we opened negotiations you have had a number of interested potential customers and I am sure you know reasonably well at this stage the market value of the company. If it is still available we would like to meet you at your convenience to discuss a possible purchase. With regard to your request to us to make an offer, we think that there might be a greater chance of success if at our meeting you could tell us Mrs O’Sullvan’s requirements about price, house requirements or any other special features of the proposed sale.
I accept this was the last time Mr McHugh was involved in the discussions relating to a sale. The evidence of the immediately following communications between Mr Murphy and Mr Murray with the O’Sullivan family is not clear beyond the fact that no offer was made which the O’Sullivans accepted. On 26 July 1977, Mrs O’Sullivan wrote to Mr Murphy regretting he was not in a position to offer £300,000; stating that there were now three companies very anxious to get the business and saying that she was not really anxious to do anything until after 24 September when her daughter Judi was to be married. Mr Murray and Mr Murphy say that after this letter the discussions went cold.
Mr Murray’s evidence then was that his and Mr Murphy’s next contact regarding the sale was when they met Mr Paul Carty in the month of September 1977. Mr Murphy thought they met Mr Carty on three occasions in Dublin. Mr Carty says that the first contact he had with the plainttiffs occurred on Friday 14 October 1977 when Mr Murphy and Mr Murray came to his office. Mr Carty, one of the defendants, has been a chartered accountant since 1966 and is a partner in Haughey Boland. Part of his field of work is the acquisition and sale of businesses. Mr Carty kept a diary in which he entered appointments and the time spent on engagements. His practice was to take notes in an attendance book of what took place at all meetings. From this he prepared a memorandum for the client’s file. Having checked the entries in his diary for 1977 and his attendance book he said that he first knew that Royal Tara China Ltd was for sale on 14 July 1977 when Mr McHugh consulted him about a technical question. Apart from this he had no involvement himself at that time and did not know of the plaintiff’s or Cavan Crystal’s interest. About 19 August Mr McHugh sent him a memorandum asking him to take over negotiations for the sale of Royal Tara China Ltd. After 19 August Mr Carty became aware that the plaintiffs had been interested and that they were on a list of four or five other interested parties including the Royal Copenhagen Porcelain Company and Beleek China. The Royal Copenhagen Porcelain Company were very interested and had made an offer which Mr Carty was prepared to recommend and the O’Sullivans to accept.
Having considered the conflicting evidence as to the number of meetings and the times when they occurred between Mr Murphy and Mr Murray on the one hand and Mr Carty on the other I think that Mr Murray’s recollection of meeting Mr Carty five or six times, if it is before 14 October, and Mr Murphy’s recollection of meeting *378 him three times in Dublin, if it is before 14 October are mistaken, and I accept Mr Carty’s evidence on this matter.
There is also a difference as to what occurred at the meeting on 14 October 1977. Mr Carty says Mr Murphy and Mr Murray came late to his office for an appointment at 11 am and that the meeting lasted about one to one and a half hours. He remembers Mr Murray saying that they had come to enquire about the disposal of Royal Tara China Ltd, having been referred to Mr Carty by Mrs O’Sullivan on the telephone on 11 October. Mr Carty said that they were arriving at the eleventh hour. Negotiations with another firm were in their final stage. He had an offer from the Royal Copenhagen Porcelain Company (though he did not disclose this) for £340,000 which he could recommend. Going into the meeting he felt he could fall between two stools and he considered what he should ask for. He determined to ask for £380,000 as a ‘take it or leave it’ price and this he did. He gave them 24 hours to make an offer and he said he would come into his office at 12.30 p.m. on Saturday 15 October as they wanted time to discuss the matter with their co-investors.
Mr Carty says he explained the basis on which the offer and sale should be made, which was that the balance sheet at 31 December 1976 should be used and that to protect the purchasers, in the event of a loss for the period from 31 December 1976 to the take-over date, there would be a provision in the contract that the vendors must be responsible for that loss and, if there was a profit, a commensurate addition should be made to the purchase price. He says he felt he should indicate such information as he had regarding the 1977 trading and that he said he had unaudited management accounts from 1 January 1977 to 31 July 1977 which had been prepared by the company’s secretary, Mr Sean Keane. He explained that these accounts were prepared showing a break-even trading position, with the stocks as a balancing figure and that in the notes to these accounts it was stated that the stocks were highly inflated. He went on to explain to them that in his opinion, assuming a closing stock of the same value as the opening stock, there would have been a trading loss of about £6,000 for seven months to 31 July 1977. He says that Mr Murphy asked for and was told the figures shown in these accounts for raw materials, sales and stock at 31 July and that Mr Murphy took these figures down. Neither he nor Mr Murray showed any great surprise and gave him the impression that they were not greatly concerned. No offer was made at this meeting and they had 24 hours to come back if they wished to make an offer.
Mr Murphy said that in regard to the occasions they met Mr Carty he could not speak with certainty as to what was said. He thought they were told how well the factory was doing and that the 1976 accounts, which were in draft, could be taken as equivalent to official certified accounts. He agrees that at the last meeting on 14 October Mr Carty said that if they wanted to buy Royal Tara China Ltd, £380,000 was the price they should offer. Mr Murphy was not sure if draft management accounts were produced. They were there. He did not remember taking any notes or Mr Carty reading out parts of these management accounts or that these accounts showed there was no profit for seven months to the end of July 1977 or that there was a note with them that raw materials and chinaware were highly inflated.
*379
Mr Murray in evidence in regard to this meeting agreed that Mr Carty said that he alrady had an offer for Royal Tara China Ltd, which was going to be accepted unless an offer for £380,000 was received. He did not remember Mr Carty having handwritten management accounts for seven months to 31 July or his reading bits out of them or that he, Mr Murray, took notes or that Mr Carty had indicted that for seven months there was no profit. Nor did he remember being told that the figures for stock and raw materials were highly inflated to show a break-even situation. He said ‘that did not ring a bell’ that it would have been a very material thing and he would have wanted an explanation and far more information.
Having considered the evidence of these three witnesses as to what passed at the meeting of 14 October 1977 I broadly accept Mr Carty’s. The impression made on me was that because of his diary and attendance record, his recollection is the more reliable. I am quite satisfied that Mr Murray and Mr Murphy are truthful witnesses, but I do not think they displayed or claimed a clear recollection of many matters where a conflict exists and I am not satisfied that their memory of these matters is not confused and inaccurate.
On Saturday 15 October 1977, the day after this meeting, Mr Murphy telephoned Mr Carty and on behalf of the plaintiffs he offered £380,000 for the assets of Royal Tara China Ltd as a going concern. A formal letter of offer dated 15 October was then sent to Haughey Boland. As a result of a telephone conversation with Mr Carty on 17 October 1977 a confirmatory letter, also dated 17 October was sent stating that the offer was all the tangible assets of Royal Tara China Ltd, outlined in the last balance sheet, the purchasers to take over responsibility for the existing liabilities of Royal Tara China Ltd. The next step occurred at a meeting on 4 November at the offices of the vendors solicitors, Messrs Kennedy and McGonagle, when they produced a draft agreement for sale which was discussed and some amendments agreed at the behest of Mr Murray and Mr Murphy which I need not refer to in detail.
I consider now the agreement for sale of 4 November 1977. The vendors were Royal Tara China Ltd and its three directors, Mrs Eileen O’Sullivan, her daughter Mrs Judi Toussaud and her son Mr Paul O’Sullivan. The purchasers were the six plaintiffs in this action. Paragraph (1) provided that the vendors should sell and the purchasers should purchase upon the terms and conditions thereinafter mentioned:
(1) The goodwill of the business of the manufacture of bone china which was carried on by the vendor in all its branches including wholesale, together with the exclusive right to the use of the name Royal Tara China or any similar name as a name or part of a name under which the said business would henceforth be carried on and to represent the purchaser, its nominee or nominees as carrying on the said business in continuation to the vendors and in succession thereto and with the benefit of all manufacturing processes used by the vendor in the said business, including any licences, patents and formulae, if any, and the benefits so far as assignable of all subsisting contracts of the vendor in the said business with its customers and suppliers;
(2) The vendors interest in the property particulars of which were set out in the first schedule thereto;
(3) The stock of chinaware and all stock in trade of the vendor in the said business;
(4) The plant and machinery listed in the second schedule thereto and all other plant and machinery and office equipment of the vendor in the said business;
*380
(5) The debts due to the vendor in the said business;
(6) Cash in hand and to the credit in the vendor’s bank accounts.
Para. (2) deals with the purchase price and it provides that the purchase price shall be £380,000 which sum has been arrived at on the basis of the purchaser purchasing ‘the net assets’ of the vendor as shown in the balance sheet of the vendor as of 31 December 1976, a copy of which was thereunto annexed. The purchase price was apportioned as follows: (a) for the vendor’s interest in the said property, the sum of £285,000 (b) for the plant and machinery and office equipment, the sum of £6,279; (c) for the ‘current assets’ of the vendors, the sum of £109,768.
The total of those three is the sum of £401.047, less allowences for current liabilities being the sum of £21,047, leaving a net total of £380,000. This paragraph went on to provide that an audited balance sheet (thereinafter called the audited balance sheet) of the vendor as at the date fixed for the completion should be prrepared as soon as possible by the vendors auditors. Para. 2(2) provided that if the amounts disclosed in the audited balance sheet for the total gross assets of the vendor including the debts due to the vendor should be less than £161,410, then the vendor should pay to the purchaser the difference between £161,410 and the amounts disclosed therein. Para. 2(3) provided that if the amounts disclosed in the audited balance sheet for the total gross assets of the vendor, including the debts due to the vendor should be greater than £161,410 then the purchaser should pay to the vendor the difference between the amounts disclosed therein and £161,410. Para. 2(4) provided that for the purpose of this clause ‘total gross assets’ should mean the total amounts in the audited balance sheet for the fixed assets plus current assets. Para. 2(5) provided that the audited balance sheet to 30 November 1977 should be prepared by the vendor’s auditors in accordance with the usual accountancy practice of the vendor to be carried out on the same basis as the previous audit. Para. 2(6) provided that all adjustments to the purchase price which were provided for in this clause should be made within one month of the date of furnishing to the purchaser of the purchaser’s solicitors of the audited balance sheet. Either party should pay to the other interest at the rate of 15% per annum on the amount of any such payments unpaid to such other party for the expiration of the said period of one month up to the date of actual payment. Para. 2(7) then provided for a submission to arbitration of any differences or disputes which should arise between the parties as to these reckonings or calculations. There was a provision in the agreement for the payment of a deposit of £95,000 on the excution thereof and for payment of the balance of the purchase money on 30 November which was the closing date. Para. (12) contained a warranty by the vendors and directors and each of them to the purchasers:
That the profit and loss account of the said business for the year ending 31 December 1976, a copy of which had been furnished to the purchaser gave a true and fair view of the financial position of the business as of that date.
Following upon the execution of this agreement and in accordance with the provisions contained in it, accounts for the eleven months to 30 November 1977 *381 were prepared by the defendant’s firm and employees of the firm were present at the stocktaking for these accounts. No complaint is made by the plaintiffs concerning the accuracy of these accounts and they are accepted by all parties as correct. The sale was completed on 30 November 1977 including the requisite adjustment provided for in clause 12 and the plaintiffs took over the management of the business and caused a new company Royal Tara China Ireland Ltd to be incorporated, of which they became the shareholders and directors with the addition to their number of Mr Michael Kilroy, and the business was transferred to this new company which thereafter was responsible for its management and operation.
I refer now to the way in which this purchase was financed. After the plaintiffs’ offer to purchase the assets of Royal Tara Chain Ltd for £380,000 had been accepted and a contract had been signed, the seven plaintiffs together subscribed £120,000 towards the purchase price and their intention was to seek the balance partly by way of grants from the Industrial Development Authority and partly by way of loan from Allied Irish Banks. These proposals were discussed with the Industrial Development Authority and with the bank, and as I understand the evidence, approval for them was forthcoming prior to the completion of the sale, but, before formal sanction was given, the the plaintiffs were required to make a detailed written submission to the Industrial Development Authority and I think also to the bank with regard to existing assets and business which were to be acquired, their proposals for its future development, the labour force, the provision and proposals regarding its financing and including budget projections for the first two accounting years of the new company, these projections being based on projected sales for each year. This written submission, which was prepared by Mr Murphy, was sent to the I.D.A. under cover of letter dated 14 November 1977 and was also submitted to the bank, and both institutions provided finance for the purchase. I do not propose to consider the submission in detail, but it does seem to me to give some indication to the ideas and projections of the plaintiffs in regard to the development and conduct of the business which they were buying and what they had estimated they could achieve, based on all the information concerning the old company which they had received and which they claimed they ought to have achieved if they had not been misled by the 1975 and 1976 accounts of the old company.
From a consideration of this submission and from the evidence it is clear that the plaintiffs were planning for and intended to build up a new enterprise. There was to be a new managing director. The workforce was to be substantially increased from 50 in 1976 to 81 in the first year of operation and 151 in the second year. Wages were projected to increase from £76,401 in 1976 to £140,000 in 1978 and £332,000 in 1979. Plant and equipment were to be improved. The pattern of production was to be altered, in that whereas 21 piece tea sets were the main product of the old company, the plaintiffs planned to introduce the production of single gift items. The qualilty of production was to be signficantly improved; whereas a lot of production of the old company had been of second qualilty, which sold at a lower price, the new company was planned to have a larger production of first quality which would carry a higher price. This would require the holding of a smaller stock *382 and would increase the unit value of each item. Volume production was also to be substantially increased.
Another important part of the plaintiffs’ proposals was the appointment of a sales manager, and, as I understand it, the introduction of the new company’s products to the sales outlets which Cavan Crystal enjoyed. This was planned to lead to a very large increase in sales. Whereas in 1976 total sales had been recorded at £164,277, for the first year of the new company projected sales were to be about £500,000 and for the second year £850,000. Mr Murphy said in evidence that he had calculated the new company’s productive capacity at 60,000 tea sets, which was double the production of the old company for 1976, and he said that it was based on his assessment of the productive capacity of the plant plus improvements and alterations which were suggested to be made at a cost of £11,000 and in the first year and £14,000 in the second year. His sale projections were based on information received from Cavan Crystal. This required that in its first year the new company should more than double the production achieved in 1976 by the old company. I advert to two matters here. None of these projections or plans appear to have been communicated to Mr McHugh, Mr Carty or the other defendants at any stage of the negotiations before the agreement of 4 November 1977 or indeed afterwards. The information on which they were based was derived from sources other then the defendants. Secondly, it is clear that these projections and plans were also made with knowledge of the conditions and circumstances of the old company; that it had been managed by one person, namely, Mr Kerry O’Sullilvan; that for two years at least before his death he had been in declining health and that management was weak, without any proper sales organisation; that in the six years from 1970 to 1976 production of 21 piece tea sets had fallen from 46,482 to 27,925; that the work force had declined from 80 to 53, and that the net trading profits had fluctuated from a loss of £8,945 in 1974 to profits of £940 in 1975 and £946 in 1976.
Following on the completion of the sale on 30 November 1977, a new managing director in the person of Mr Michael Kilroy was appointed. He had business experience in diverse fields both in the United States of America and in Ireland in the ten years prior to 1977. None of this experience was connected with the manufacture of bone china though he says he knew the basic principles of its manufacture. On his examination in chief Mr Kilroy said that when he went to Galway as managing director he made very few changes in the staff. He started to count the stock being produced in the first weeks by the staff that he had inherited and he found figures of production very low at £1,500 per week. Production at this level continued for five or six weeks. After this time he came to the conclusion that the company could not survive for long at this level and a decision had to be made to change production. For this purpose an additional 20 or 30 staff were taken on over a period of three or four months. A designer was recruited to design a range of individual gift pieces. Historically the company produced 21 piece tea sets which involved building up and carrying big stocks as there were so many pieces to each set. Mr Kilroy said it took over two years to implement these changes. He also achieved a signficant improvement in the quality of the product raising it to 65% *383 ‘bests’ after the first six months. He said there was no management when he got there except a works manager and a Mr Morris who was a consultant in relation to bone china.
In cross-examination he said that for the first six months none of the new giftware was produced and the production continued to be the standard range of 21 piece tea sets. For 1976 the account showed sales of £164,000, that is over £3,000 per week for 47 weeks, whereas for the six months to 31 May 1978 sales were £98,452 with an opening stock for that period of £2,569. He accepted that the closing stock for the period was £24,792 so that for that period finished stock increased by £22,000 and the total manufacture, including sales, had been £120,000, which indicated production of £22,000 per month or £5,000 per week without introducing new lines. He then agreed that the first few weeks, with production at £1,500 per week, may have been very bad, but that after that, within the six months, rapid improvements were made. He explained this by saying that as soon as the extent of the problem was established, that is within two months from December 1977, he doubled the prices of the tea sets and thereby increased the product unit value. When he took over he was very concerned at the lower than expected level of production. What was wrong he thought was neither the plant nor the work force. When asked why they were not able to produce more, he said that without reference to historical events he could not answer. Later he said that the company had production difficulties in the first stage which included poor quality plant and equipment and the lack of an adequate and experienced labour pool. This latter factor was especially true at the supervisory level. Further, no sales staff was appointed until perhaps 12 weeks after the take over, as at the beginning the company did not have the stock to sell. It was suggested to him that the finished stock at takeover was £2,569 and he agreed that, apart from this, at the beginning the company did not have stock to sell and that no new stock was available for sale before the beginning of 1978. Finally, he accepted that for the first 14 months after the takeover the company made a loss of £125,000. For the next year, 1980, the loss was £45,000. In 1981 there was a profit before tax of £69,168; in 1982 a profit of £126,023; and in 1983 a profit of £78,417 and in 1984 a profit of £152,611.
After the completion of this sale and taking control of the management of the business in the early months of 1978, the plaintiffs became aware that the production and sales which they had projected were not being achieved and they began to consider among other things the accounts of Royal Tara China Ltd for 1976 and earlier years. On 25 August 1978 Mr McQuillen wrote to Mr Carty complaining that the figures for stock in the 1975 and 1976 accounts appeared to be understated with the result that the profits for the year 1976 were overstated. By September 1979 the plaintiffs had commenced proceedings against the vendors under the agreement of 4 November 1977 claiming damages for breach of warranty contained in clause 12 of the agreement. I am informed that subsequently, these proceedings were stayed pending the submission of the matters then in issue to arbitration which has not yet been proceeded with. Meanwhile in 1983 the plaintiffs’ solicitors made a claim against Messrs Haughey Boland & Co. and the *384 present proceedings were instituted by plenary summons dated 19 March 1983.
In their statement of claim in these proceedings, the plaintiffs allege firstly that the defendants, as auditors, in the preparation of the accounts of Royal Tara China Ltd, from and including the year ended 31 December 1973 to 31 December 1977 owed a duty of care to the plaintiffs in the auditing of the company’s accounts for these years and in making certain representations in the course of the negotiations of the agreement for sale of the business to the plaintiffs. In para. 6 it is alleged that acting in their capacity as auditors of the said company the defendants represented to the plaintiffs (a) that they had duly certified the accounts of the company for the accounting years ended 31 December 1973 to 31 December 1976 inclusive, (b) that the balance sheets of the company on the dates referred to were properly drawn up and exhibited the true and correct state of the company’s trading pattern and financial affairs, (c) that the accounts and balance sheet as at 30 November 1977 were prepared and audited in accordance with clause 2 of the agreement for sale. It was alleged that these representations were partly oral and partly in writing. Insofar as they were oral they were made at several negotiations and meeting held prior to 4 November 1977 between the plaintiffs on one hand and the directors of the company and the defendants acting on behalf of the company on the other, and insofar as they were in writing, they were contained in or were to be inferred from the accounts and the balance sheets of the company which were produced to the plaintiffs during negotiation and at meetings by the defendants on behalf of the shareholders of the company to the plaintiffs.
It is alleged that at the time of the making of these representations the defendants intended and they well knew or ought to have known that the plaintiffs would rely thereon and would be induced thereby to invest the sum of £380,000 in the assets and business undertaking of the company upon the terms and conditions contained in the agreement for sale. Then it is alleged that the defendants failed to carry out any or any proper investigations or verification of the information on which the accounts for the years ended 31 December 1973 to 31 December 1976 were prepared. In preparing the accounts it is said that they failed to have proper regard for their correctness or accuracy in that they reflected a totally inaccurate and misleading view of the trading patterns and financial affairs of the company.
It is further alleged that in preparing the accounts and balance sheet as at 30 Novmber 1977 the defendants failed to report in the auditor’s report attached to the accounts that there was a change in the method of inventory costing in the accounts and balance sheet dated 30 November 1977 and that the accounts and balance sheet were not properly drawn up and did not exhibit the true and correct state of the company’s affairs but on the contrary, represented a misleading and false view of the trading pattern and financial position of the company in that the accounts for the years ending 31 December 1973 to 31 December 1976, inclasive, incorrectly stated the true value of the inventory and stock in trade of the said company, resulting in a misleading and inaccurate calculation as to the true and correct value of the inventory and work in progess of the said company as at 30 November 1977. Then it is alleged that the understating of the true value of the inventory and work *385 progess of the company resulted in a misleading, false and untrue calculation of the profits and losses accruing and accumulating for the accounting periods ending 31 December 1973 to 31 December 1977.
Finally, it is alleged that the plaintiffs were induced by these representations and accounts for the years 1973 to 1977 to pay the price of £380,000 for the assets and business of Royal Tara China Ltd and as a result suffered loss and damage.
The defendants asked for particulars of these allegations by letter dated 25 July 1983 and by their reply dated the 25 January 1984 the plaintiffs alleged: (1) that insofar as the representations were oral, Mr Stan McHugh and Mr Paul Carty had warranted to Mr Brendan J. Murray and Mr Peter J. Murphy, that the trading position of the company was and always had been sound and (2) that the accounts certified by the defendants were produced to the plaintiffs on divers dates between 1 March 1977 and 4 November 1977 by the O’Sullivan family and/or by Mr Stan McHugh and Mr Carty and that these figures were the basis on which the discussions with the O’Sullivan family and with Mr McHugh and Mr Carty were carried on. (3) It is then said that there were traditionally two main irregular features of stock taking at Royal Tara China Ltd, namely (a) many items were omitted altogether from the stocktaking; (b) many other items were included at a very low fraction of their cost or value. (4) It is alleged that this understated stock in 1975, 1974 and earlier years was fed into the company’s trading in 1975 and 1976 for the purpose of showing profitable trading results, when in fact if the stock had been taken on a correct basis, these years would have shown a trading position declining into losses.
During the course of the trial the plaintiffs abandoned the particulars of damages which had been supplied by their letter of 25 January 1984 and after I had given them liberty to do so, by a further undated letter delivered further particulars during the course of the trial, whereby they reframed their claim for damages so as to claim (1) the sum of £105,000 being the difference between the price paid and the true value of the net tangible assets of the company; (2) the sum of £95,000 being the estimated profit available for distribution in the form of dividend income to the shareholders of Royal Tara China Ireland Ltd for the period commencing 1 December 1977 to the period ending on 31 January 1980. To this claim the defendants delivered a defence which I need not set out in detail. It was in effect a traverse and denial of breach of duty and a denial that the plaintiffs made the representations alleged in the statement of claim or any representations.
The first issue that arises on the pleadings is whether the defendants owed a duty of care to the plaintiffs in the auditing of the company’s accounts and if so in respect of which years?
During the course of the trial counsel for the defendants conceded that such a duty of care was owed in respect of the accounts for the year ending 31 December 1976. As I understand it, this concession was made on the basis that these accounts were being audited by Mr Stan McHugh in the months of April and May 1977 and were certified by the auditors in June 1977, and in evidence he freely admitted that at that time, after Mr O’Sullivan’s death, he was aware that Mrs O’Sullivan and her *386 family were actively considering and canvassing the sale of the business. But it was not admitted that in regard to the accounts for the years ended 31 December 1975 or 31 December 1974 or 31 December 1973 any duty of care was owed by the defendants to the plaintiffs because it was said that no sale was in contemplation or reasonably should have been foreseen by Mr McHugh at the time of auditing the accounts in those years.
In his submission relating to the duty of care, counsel for the plaintiffs substantially relied on the test adumbrated by Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, at pp. 751–752 where he said:
Through the trilogy of cases in this house, Donoghue v Stevenson [1932] AC 562, Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465, and Dorset Yacht Co. Ltd v Home Office [1970] AC 1004, the position has now been reached that in order to establish that a duty of care arises in a particular situation, it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter — in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any 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 or the damages to which a breach of it may give rise.
Counsel for the defendants submitted that in cases of negligent statement or misrepresentation the issue fell to be considered within the formulation of principle expressed in Hedley Byrne & Co. Ltd v Heller & Partners Ltd [1964] AC 465. Lord Morris said, at p. 502:
I consider that it follows and that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise.
This latter test, if applied, would require reliance by the plaintiffs on the skill and care of the auditor of the accounts as part of the test of liability as well as part of the chain of causation. Both counsel referred me to and relied upon a recent English decision, JEB Fastners v Marks, Bloom & Co. [1981] 3 All ER 289, a case in which issues very similar to those in this case arose and which contains a helpful review of the English decisions and a certain New Zealand decision, Scott Group Ltd v McFarlane [1978] 1 NZLR 553. At p. 296, Woolf J said:
without laying down any principle which is intended to be of general application, on the basis of the authorities which I have cited, the appropriate test for establishing whether a duty of care exists appears in this case to be whether the defendants knew or reasonably should have foreseen at the time the accounts were audited that a person might rely on those accounts for the purpose of deciding whether or not to take over the company and therefore could suffer loss if the accounts were inaccurate. Such an approach does place a limitation on those entitled to contend that there has been a breach of duty owed to them. First of all, they must have relied on the accounts and, *387 second, they must have done so in circumstances where the auditors either knew that they would or ought to have known that they might. If the situtation is one where it would not be reasonable for the accounts to be relied on, then, in the absence of express knowledge, the auditor would be under no duty. This places a limit on the circumstances in which the audited accounts can be relied on and the period for which they can be relied on. The longer the period which elapses prior to the accounts being relied on, from the date on which the auditor gave his certificate, the more difficult it will be to establish that the auditor ought to have foreseen that his certificate would, in those circumstances, be relied on.
I respectfully adopt that as a statement of the appropriate test of liability to apply in this case.
Applying this test to the accounts for the year ended 31 December 1976, I have no doubt that the defendants did owe such a duty of care and indeed counsel for the defendants, as I have said, conceded as much during the course of the trial. The audit for that year appears to have occured during the months of April and May 1977, and the accounts were certified in the month of June 1977. The first approach by Mr Murphy and Mr Murray to the O’Sullivans occurred in March and the O’Sullilvans were actively considering a sale of the business from April 1977. Mr Stan McHugh was made aware of this at the time the audit was being done and subsequently became aware that there were a number of potential purchasers of whom the plaintiffs were one prior to certification of the accounts.
In regard to the accounts for the year ended 31 December 1975 the defendants do not admit that they owe any duty of care to the plaintiffs. The auditor’s certificate on these accounts is dated 28 October 1976 and the audit was presumably conducted in the preceding months. During 1976 Mr Kerry O’Sullivan was in declining health and this was affecting the management and performance of the business. Mr McHugh says, and I accept his evidence that in this year he was not aware that a sale was being considered by the O’Sullivans and there has been no evidence that it was, but that it was a possibility at this time. There is, however, the further factor relied on by the plaintiffs in regard to the 1975 accounts, namely that the figures in the balance sheet and the profit and loss account for that year appeared by way of comparison in the 1976 accounts which were certified and put forward by the defendants in the course of the negotiations for sale in 1977 to the plaintiffs and to other interested parties. In my view the autitors in auditing the 1975 accounts should reasonably have foreseen and considered that there might be a sale of the business and the persons interested in purchasing it might rely on the 1975 accounts. As to the accounts for the year ending 31 December 1974 and 31 December 1973 there has been no evidence that these accounts were put forward by the defendants as auditors in the course of 1977 for the purposes of negotiations with the intending purchaser. The evidence has been that so far as the present plaintiffs are concerned, these accounts were delivered to them by Mrs O’Sullivan without the intervention of any of the defendants. At the times they were prepared I am not satisfied, from any evidence which I have heard, that any sale of the business was in contemplation by the defendants as auditors. And in the circumstances of this case I do not think it has been established that any duty of care lay upon the defendants, in the preparation of the accounts for these years, in regard to the plaintiffs as intending *388 purchasers or in regard to intending purchasers in general.
It will be convenient at this point if I refer generally to the professional duty of an auditor in regard to accounts. Evidence for the plaintiffs, which I accept and which was not really contested, was given by Mr Alan Maloney, an independent chartered accountant, who qualfied and has been in practice since 1963, and has worked for Messrs Craig Gardner since 1965 and has for some years lectured in accountancy in University College Dublin.
He described the essential features of an audit as ‘making an independent report for the shareholders on accounts prepared by the directors’, In order to do this an auditor would begin by trying to obtain a general idea of the existing business by examining the accounts of two or three previous years. He would then ascertain what arrangements the company had made that would result in reliable accounts being prepared and he would make whatever examination and tests of those arrangements he considered appropriate to determine their reliability. He would then compare the actual draft accounts prepared by the directors with the arrangements leading to them, that is the company’s accounting records. And finally, having established (a) that the company has made adequate arrangements leading to proper accounts, (b) that the system is reliable by testing and (c) having compared the accounts with the output of that system, he would make an overall review of the draft accounts to see whether they give a true and fair view in relation to the profit and loss account and the balance sheet.
It is clear that an auditor cannot conduct an examination of all the company’s transactions during the particular accounting period. He is concerned to see that there is an adequate and proper system for recording transactions, that such transactions are properly authorised and that the assets of the company are properly looked after and safeguarded.
Passing from these general considerations to the particular matter of stocktaking, Mr Moloney said that stocktaking was a physical count and was recorded as a list. He described the auditor’s duty and concern as firstly to ascertain what arrangements the company had made for accurate stocktaking and, secondly, to test those arrangements. Evidently it was no part of the auditor’s duty to conduct the stocktaking. That was a matter for the company to carry out. The auditor’s duty was to see whether the client was operating and carrying out adequate arrangements for the proper counting of stock with a view subsequently to valuing that stock. One way for the auditor to carry out this duty was to attend at the stocktaking and to observe while the stock was being taken.
Mr Maloney then described the kind of arrangements which would constitute stocktaking. They would include, he said, one and one only count of all stock ensuring that everything that was stock had also been recorded as a purchase in the company’s books. An important feature of this was also to identify stock of poor quality which would affect its value. After stocktaking the next step was to ensure that counted stock was translated into value by applying prices. This also was a function of the company. The auditor’s duty was simply to check that stocks were valued in accordance with an acceptable principle for valuation, usually at the lower *389 of cost or market value.
At the end of stocktaking the auditor’s duty was to judge whether he could reasonably rely on the client’s stocktaking or not and whether the stock appeared to be of an amount which was material in relation to the balance sheet and the turnover of the company. If he decided for some reason that he could not rely on the stocktaking he might try to reach a satisfactory appraisal of the position by some other means such as taking stock at a date shortly after the end of financial year and, working back through sales records to the years end, try to verify the clilent’s stock figures. If, however, he was unable to satisfy himself of the reliability of the figures resulting from the client’s stocktaking then he must qualilfy the auditor’s report.
Mr Maloney was asked during the course of his evidence about the case where an auditor was unable to attend at stocktaking. His reply was that there was no professional standard or statement of practice that the auditor must attend at stocktaking. He had an option to attend or not to attend. It was considered in the profession and recommended in the statement of principles that attendance at stocktaking was the best way of checking the adequacy of the stocktaking. But the auditor as a professional person might make up his own mind what he would do in the circumstances of the particular case.
Having decided that a duty of care existed in regard to the accounts for the years ended 1975 and 1976, the next question I have to consider is whether Mr McHugh as auditor of the company was guilty of negilgence in auditing the company’s accounts for these years.
The substantial thrust of the plaintiff’s case was that, owing to the negligence of the defendants and in particular of Mr McHugh, the company’s audited accounts for the years ended 31 December 1973 to 31 December 1976 inclusive were incorrect; that they incorrectly stated, that is understated, the stock in trade of the company for these years which in turn resulted in a misleading overstatement of the trading profit or reduction of the trading loss for these years. This case was formulated in two ways. Firstly, it was alleged that, in breach of the duty of care Mr McHugh owed, no serious audit of the stocks was carried out in any year. And secondly, in order to establish that the figures for stock in the audited accounts for each of these years were erroneous, an exercise was undertaken by the plaintiffs accountant whereby he attempted to estimate or calculate what the true figures for stocks in each year should have been. I will consider each of these matters in turn.
The main evidence in relation to them was given by Mr Kenneth McQuillan, a chartered accountant in practice for over 30 years. His evidence was that an examination of the auditor’s working papers for each year did not show that any physical stock observation took place or that any serious audit of the stocks was carried out for any year other than 1977. There were no working papers showing pricing policy, the basis of valuation of the stock or how such valuation was established. There was no comment in regard to the stock or whether it was in good condition. There was no qualification of the audit report in any year which would inform a person reading the accounts that the stocks might not have been adequately *390 examined or properly valued. The Institute of Chartered Accountants had issued statements and recommendations on stock and work in progess which set out the professional standards required. These were: Statement on Auditing, K1-U9, (Attendance at Stocktaking) issued in 1968; Statement on Auditing, K1-U11 (Stock and Work in Progess) issued in 1969; and Statement of Standard Accounting Practice, GP (Stocks and Work in Progess) applicable from 1 January 1976.
In Mr McQuillan’s opinion, which I understand was based upon an examination of the audit working papers from 1973 to 1977, the recommendations and professional standards set out in these statements had not been followed or adhered to in any year up to and including the accounts for 1976.
The defendants’ defence in relation to these allegations of failure to carry out a proper audit of the company’s accounts and of inaccuracy and negligence in relation to the audited accounts necessarily depends greatly upon the evidence of Mr Stan McHugh, the fourth defendant, who was the auditor of Royal Tara China Ltd, during all the years in question and was responsible for the audit of the accounts which have been impugned. I turn now to consider his evidence.
Mr McHugh qualified as a chartered accountant in 1936 and was in practice from 1937 until his retirement in 1979. For much of this time he carried on his profession in his own firm under the name Kenny McHugh, until in 1971 this firm merged with Messrs Haughey Boland, of whom the defendants are partners. He is now aged 73. He had known Mr Kerry O’Sullvan and was on friendly terms with him for many years. In the early years of the last war Mr O’Sullivan had engaged in making earthen tableware in Dublin. In 1953 he incorporated Royal Tara China Ltd, and Mr McHugh became then and continued as its auditor until 1977 when the business was sold. He personally audited the company’s accounts during all these years, did all the work himself and never had audit staff with him. After some years, in the late 1950s, he became a director of the company but he says that he was never closely involved in the business of management and that he was a director really only in name. He described Mr Kerry O’Sullivan as a qualified potter who knew his business from the floor up. For a time he had been employed by Arklow Pottery. He described him as ‘a one man show’ and as dealing, himself, with production and as being the sole manager and sales and marketing director. Mr O’Sullivan followed the policy of arranging a trade show, usually about May or June, to display his wares to the wholesale trade and to the larger retailers from Dublin, Limerick and Cork once a year in Dublin and Galway. In Dublin this display took place at the Central Hotel or at the Gresham Hotel for a week. Mr O’Sullivan took orders for his products. He employed no salesmen on the road. After the trade show he went back to Galway with a fairly full order book and he planned production for the following months to fulfill these orders. He had a policy not to build up stocks before he had received orders and towards the end of the financial year, which was the end of the calendar year, he was intent on clearing all stock in the company. He did not want to build up stocks and have to incur a bank overdraft. The factory staff received a week’s holiday at Christmas and the rest of their holiday in July at the time of the Galway races. As a result of this policy, at the end of the company’s *391 financial year in December, the stock was at its lowest. Mr McHugh gave it as his opinion that Mr O’Sullivan’s conduct of the business in this way tended to give an exaggerated figure for stock/turnover ratio.
Mr McHugh described how Mr O’Sullivan had begun in one room in Dublin to manufacture and had grown into a business which occupied a specially built factory in Galway. When he was in good health he had been very vigorous and the business was a profitable one. In 1969, Mr O’Sullivan had a serious illness and one of his kidneys was removed. He recovered from this fairly well. For about a year prior to his death in March 1977 he had not been very well and had been in hospital for periods. For the last couple of years he had been losing his vitality. During this period when he was failing or not at the business his control was reduced. He spent less and less time in the factory. Sales were very seriously affected. Stocks tended to accumulate and productivity tended to fall.
From 1955 Mr Sean Keane had been employed as the company’s book-keeper. He worked with one typist in the office and was responsible for entering all the company’s books and looked after the wages.
The annual audit of the company’s accounts normally occured in March or April. Mr McHugh says he attended each year in Galway and usually spent two or three days at work there. Mr Keane would produce draft accounts prepared in considerable detail. He would have all the books of account and the nominal ledger made up. Mr McHugh described the company as having a very full set of books of account which were perfectly adequate. He had seldom seen such a well kept set of books. They were solely Mr Keane’s responsibility and Mr O’Sullivan was not involved with them at all. Mr McHugh then said he did not attend at any physical stocktaking at 31 December in any year from the formation of the company in 1953. He knew Mr O’Sullivan’s methods from discussions with him and from the stock lists which he received each year. He was assured by Mr O’Sullivan that he had personally taken stock, that the stock was there, that it was measured, quantified and valued and he assumed that Mr O’Sullivan had acted in a commonsense and commercial manner. He took the view that an auditor was entitled to rely upon trusted employees of the company and Mr O’Sullivan was the employee and the major shareholder in this company. Mr McHugh said he did not think it was necessary to be personally present at the stocktaking because there was such full control by the owner Mr O’Sullivan and because of his policy of running stocks down to their lowest level by the end of the year. In cross-examination on being asked about the stocks he said in his view they were of a size which was not material either to the balance sheet or to the turnover of this company.
Mr McHugh said that the stocks were shown in the nominal ledger or were ascertainable from it. This ledger recorded all purchases of materials for the year. At the end of each year the value of the stock was shown in money terms to close off the account. The account also showed materials consumed and a record of ware or finished stock was kept in a running account. The figures for stock in the nominal ledger were entered from the stock sheets prepared at stocktaking. Mr McHugh said the nominal ledger contained a summary of all the company’s transactions for *392 the year and described it as one of the best kept books he had come across in his experience as an accountant. He said that when he went to Galway each year to do the audit he asked Mr O’Sullilvan about the stock at December and either Mr O’Sullilvan or Mr Keane have him stock sheets listing all the stock and that these stock sheets satisfied him. They were in Mr O’Sullivan’s handwriting and each type of item of stock was described and quantities were stated. He examined these stock sheets but left them at the company’s offices in Galway and did not take copies away with him. He did however receive and take away a summary sheet for each year which was a summarisation of a number of detailed stock sheets for the year in question and this was sufficient for his working needs. Mr McHugh then said that having received the stock sheets he would carry out tests by reference to purchases recorded for the period and for the period immediately following the end of the year. And he followed through records of subsequent sales to trace the exit of stocks to customers from time to time. He denied that he did not take adequate steps to check the correctness of the stock figures.
In regard to the 1976 accounts he agreed that there was no record or statement of the audit programme for that year but he said he had followed the same programme in previous years. He said the working papers did contain a record of the actual breakdown of the stock and that this was a summary of detailed stock sheets.
In the 1976 draft accounts, stock was noted by Mr Keane as ‘valued by the managing director’. The audit was done in April 1977 after Mr O’Sullivan had, in fact, valued the stock but after 23 years experience of the company he thought that he (Mr McHugh) could make a judgment as to the validity of the stock figures. In regard to the items marked as ‘estimated’ on the draft accounts, he said he was able to go back to the original stock sheets and come to a conclusion as to the quality and value which was not an estimate.
At this point it will be convenient if I give my appraisal of Mr McHugh as a witness. Mr McHugh’s evidence in part relates to matters in respect of which he was the only person in a position to give direct evidence of what occurred or what he did. In other parts it was possible to consider his evidence together with the evidence of other witnesses who were equally well placed to testify or in relation to the audit working papers which were available. Having considered his demeanour as a witness and his testimony, I find him to be a truthful and reasonably careful witness, not given, so far as I could judge, to exaggeration or distortion. In a number of instances he candidly admitted matters which were to adverse to his case and did not try to conceal them, though he gave reasons or explanations in justification of his conduct. He is a witness whose evidence generally I accept as truthful and reliable.
I now come to consider whether the plaintiffs have established that Mr McHugh failed to show the care and skill which a reasonably careful and skilful accountant should show, firstly, in relation to the stocktaking for the years 1975 and 1976 and, secondly, that he failed to carry out any proper investigation or verification of the information on which the accounts for these years were based.
*393
There was really no dispute between the parties about the duties of an accountant in relation to stocktaking. Both accepted the statements of professional standard of the Institute of Chartered Accountants. These require that the auditor should ascertain what arrangements a company has made for accurate stocktaking and that he should test them. One way in which the auditor might fulfil this duty and which was recommended was to attend at the stocktaking and to observe the procedures being followed. Mr Alan Maloney said there was no professional standard or practice which required that an auditor must attend. He has an option to attend or not to attend. It was considered in the profession and recommended that the attendance at stocktaking was the best way of testing or checking the adequacy of the procedures of the company’s servents. But the auditor, as a professional man, might make up his own mind what he would do in the circumstances of each particular case. At the end of the stocktaking the auditor’s duty was to judge whether he could reasonably rely on the company’s stocktaking which was material in relation to the balance sheet and the turnover of the company.
In the present case at the stocktaking and audit for the 1975 and 1976 accounts, Mr McHugh had been auditing the company’s accounts for over 20 years. He knew Mr Kerry O’Sullivan well and had discussed the accounts and matters such as stocktaking on many occasions with him. He was familiar with Mr O’Sullivan’s way of managing the business and knew that he personally took stock. He had long experience of the company’s accounting arrangements and of the books of account which were kept. He had a good opinion of them and of Mr Keane, the company’s secretary. He said that in his judgment he thought he could rely on Mr O’Sullivan’s stocktaking and on Mr Keane’s books of account. But he admitted that neither in 1975 nor in 1976 or any previous year back to 1954 had he ever attended at stocktaking and observed the procedure followed by Mr O’Sullivan.
In regard to the accounts for the year 1976 he said he did not know whether or not Mr O’Sullivan had taken stock or who had done it. Mr O’Sullivan was not able at this time and might not have taken stock. When he went to do the audit he was given stocksheets which had figures with the word ‘estimated’ written opposite them. But he said this referred to the values and that he was satisfied stock had been taken. He made checks in the books of account of purchases and sales for the following weeks and he was satisfied that the figures in the stocksheets were consistent and that the figures for stock in the audited accounts were correct. Considering all the evidence on this aspect, did Mr McHugh fail to exercise reasonable care in regard to the stocktaking — in particular by failing to attend the stocktaking in either 1975 or 1976?
If these two years were exceptional and if in some previous years he had attended, observed and been satisfied, I should have been slow for reason only of non attendance in these two years, to conclude that there was any want of care. But 1975 and 1976 followed on 20 earllier years in which he never attended at stocktaking. I am aware from the evidence that, over the past 40 or 50 years, the standards in the profession have tended to become more exacting. In 1975 and 1976 Mr McHugh was drawing close to the end of his professional career and to *394 retirement and it may be that his conduct in regard to stocktaking would in earlier years have been regarded as acceptable. But I have come to the conclusion that having regard to the professional standards which were recognised in 1975 and 1976 there was a failure by Mr McHugh, in not attending at and observing the stocktaking, to exercise reasonable care.
The further allegation is made by the plaintiffs that Mr McHugh failed to carry out any proper investigation or verification of the information on which the accounts for these years were based. I consider this as a distinct and more extensive allegation than that of failing to attend at the stocktaking and it is linked by the plaintiffs to the allegation that the auditor’s working papers for 1975 and 1976 and for earlier years which were forthcoming, were sketchy and incomplete and that others which one would have expected to be available were simply not there. There was only an audit programme produced for one year between 1973 and 1976 and the narrative record of audit work done in most of these years were deficient and incomplete or missing altoghter. And in effect it is alleged that the fact that such papers are defective or incomplete or missing is evidence that the requisite audit work was not done at all.
Mr McHugh’s answer in evidence to these allegations was, firstly, that when an auditor was personally conducting the audit without the assistance of staff and was the principal of the firm who would sign the audit certificate and report, there was not the same need for working papers to comprise a narrative record of work done. Secondly, he positively asserted that for each year that he audited the company’s accounts and in particular for 1975 and 1976 there were stocksheets containing lists of all stock in the factory which had been counted and that he checked the figures for stock against the account book of purchases, the nominal ledger and the records of subsequent sales in the sales ledger.
Perhaps it should also be remembered that the accounts for 1975 and 1976 were audited over eight years ago and six or seven years prior to the plenary summons in this action, and there is certainly the possibility that the papers may have been mislaid. It was accepted by the parties that there is no professional standard requiring the retention of working papers for any period.
In regard to all these matters Mr McHugh was subjected to a searching cross-examination. Having considered all the material evidence, in my judgment the allegation of failure to investigate or verify the information on which the accounts for 1975 and 1976 were based has not been made out. I accept Mr McHugh’s evidence and I am not at all convinced that the incompleteness of the audit working papers establishes that the appropriate audit work was not done.
There were two further allegations in the statement of claim which it is convenient to deal with here. Firstly it is said that there were traditionally two main irregular features of stocktaking at Royal Tara China Ltd, namely many items were omitted altogher from stock and many other items were included at a very low fraction of their cost or value. Secondly it is said that this understated stock in 1975, 1974 and earlier years was fed into the company’s trading in 1975 and 1976 for the purpose of affecting the profits. I find that none of these matters was established *395 by the evidence.
There is one further allegation made by the plaintiffs in giving particulars of their claim in the statement of claim by letter dated 25 January 1984 to which I must now refer. It is alleged that Mr Sean McHugh and Mr Paul Carty at meetings prior to the agreement of 4 November 1977 falsely represented to Mr Murray and Mr Murphy that the trading position of the company was and always had been very sound. In evidence Mr Murray and Mr Murphy said that Mr McHugh and Mr Carty had represented to them something in rather different terms, namely that the business was a good one and that the O’Sullivans had done very well out of it. No particulars of the terms of these latter representations were ever furnished to the defendants prior to the trial. I am not satisfied that Mr Murray’s and Mr Murphy’s recollection of these statements as having been made by Mr McHugh or Mr Carty at the times alleged is accurate or reliable. Further I am not at all satisfied that if any such statements were made they were relied upon by the plaintiffs in deciding to enter into the contract of purchase.
A further allegation made by the plaintiffs is that the defendants failed to prepare the balance sheet and accounts for the eleven months to 30 November 1977 on the same basis as the previous years accounts as was required to the defendants knowledge by clause 2(5) of the plaintiffs’ agreement with the vendors. It was accepted by the plaintiffs that the accounts for the eleven months to 30 November 1977 were correct and accurate. But it was said that because the accounts for the year ending 1976 and for earlier years were defective and deficient in all the various points alleged by the plaintiffs the 1977 balance sheet and accounts could not be said to have been prepared in accordance with the usual accountancy practice of the vendors or carried out on the same basis as the previous years audits. I have already expressed my view of these allegations in regard to the 1976 accounts and I do not find that the allegation made about the 1977 accounts has been made out.
Having found that in one respect, namely his failure to attend at and observe the stocktaking in either the year 1975 or 1976, Mr McHugh was guilty of negligence and failure to conform to the standard of care recommended by and adhered to in the profession, I now turn to consider whether the plaintiffs have made out their claim that stock figures in the audited accounts for 1975 and 1976, the only years I am concerned with, were as a result false and misleading, leading to incorrect profit or loss figures.
The plaintiff’s case in this respect mainly rests upon the evidence of Mr McQuillan. Understandably in 1978 or later there was no way in which he could directly check, by a recount, the figures for stock for 1975 and 1976 or directly check the values of such stock. He was obliged to resort to other methods. He took as his starting point the account books of the company — the purchases ledger, the sales ledger, the nominal ledger, such auditors working papers as were available and the audited accounts for these years. The exercises he carried out in fact were directed to the stock figures for each of the years from 1973 to 1976 and I refer to his evidence in regard to these years although I am only concerned with the figures for the years 1975 and 1976. Mr McQuillan said he devised two independent *396 methods of recalculating the figures for stock for these years.
The first method, which he calls the calculated method, consisted in taking the total purchases for each raw material recorded in the company’s purchases book for each year and calculating the average monthly purchases for that year by dividing the total figure for each raw material by twelve. His calculation then proceeds upon the following assumptions: (a) That the average monthly purchases for each commodity could be equated with average monthly usage of that commodity; (b) That there are no opening stocks at the commencement of the accounting year; (c) That none of the stocks is consumed in the month of purchase; and (d) that purchase takes place at the date of the recorded purchase invoice.
In the course of this exercise, Mr McQuillan prepared a schedule of all stocks for each year so far as he could reconstruct them from the books; he had the figures in the disputed stock sheets which Mr Sean Keane had prepared; and he prepared summaries of the figures for purchases listed in the purchases invoice book.
Using the information available to him from these sources he calculated the stocks which he thought should have been in the company in each of the years in question. He reached the conclusion that the stocks for all years from 1973 to 1975, inclusive, were understated and that the stock for 1976 was slightly overstated and that this inflated the figure for profit shown in the accounts for 1976. The figures Mr McQuillan gave for profit and loss for these years were as follows. In 1974 the accounts showed a loss of £8,945. On his calculation the loss should have been £12,708. In 1975 the accounts showed a trading profit of £1,940. On calculations there should have been a loss shown of £366. In 1976 the accounts showed a trading profit of £949 whereas they should on his calculations have shown a loss of £15,843. From these calculated figures he saw a completly different trend. He said that, if prior to the sale of the business he had seen the audited accounts for 1973 to 1976, he would not have been impressed by the profits but they would not have rung an alarm bell as would have losses.
Under cross-examination Mr McQuillan admitted that in carrying out the exercise using the calculated method for estimating stock figures, he did not use it consistently. In some instances when it was used it produced results which were obviously wrong. In such instances he did not use it but took some average figure which he judged might be reasonable in the circumstances. He agreed that it was a method which could produce results which were patently wrong in some instances, he did not agree that the method of calculation was very unreliable, provided it was not used mechanically. By this I understood him to mean that in some instances where it produced a result which he judged could not be correct he did not employ that method of calculation. He admitted that in such instances the figures he used were what he thought appropriate or reasonable in the circumstances. He agreed that this calculated method was not a recognised method of auditing stocks and he said that on the basis of this method he would not give a certificate that the accounts gave a true and fair view of the company’s position.
Mr Alan Maloney giving evidence for the plaintiffs, said that Mr McQuillan’s report seemed a reasonably practical attempt to estimate stocks. He accepted the *397 criticisms of it which the defendants had advanced but he did not think they invalidated Mr McQuillan’s exercise. The assumptions made by Mr McQuillan were fair though not perfectly correct. Overall he described it as quite accurate in his estimate.
Mr Michael Norris, who is one of the defendants, in his evidence criticised the assumptions upon which Mr McQuillan’s calculated method proceeded. He described them as artificial and he said that a variety of factors may affect these assumptions. I understood him to question the assumption that average monthly usage could be equated with average monthly purchases. He said that usage would be influenced by and would depend upon customers’ orders and that production itself would vary from month to month and his conclusion was that this calculated method adopted as a critique of the stock figures in the audited accounts by Mr McQuillan was not itself a reliable method of mounting a critique of these stock figures.
Having considered all the evidence relating to this method which was devised by Mr McQuillan as a criticism of the figures for stock in the audited accounts for 1975 and 1976, I have to decide whether it provides a sufficiently reliable standard on which to base a judgment in regard to the audited accounts. There are at least two aspects which cause me concern and doubt.
Firstly the assumptions on which it is based appear to me to render it a very crude and imprecise standard. The assumptions on which it is based seem to correspond very poorly, if at all with the style and practice of the business which the evidence discloses was carried on by Mr O’Sullivan. They do not appear to make any allowance for his practice of producing for orders, of carrying as low a stock as possible during the year and of running it down to a minimum for the end of the financial year.
Secondly, it is admitted by Mr McQuillan that this method of calculation at times produced figures which were clearly erroneous or impossible and that in such instances he made his own estimate of the particular figure for stock on raw materials which he estimated to be reasonable and abandoned the erroneous calculated figure. I find that I am not able to accept the figures for stock calculated by Mr McQuillan by means of the calculated method as a reliable standard for judging that the figures for stock in the audited accounts for 1975 and 1976 are incorrect or inaccurate.
The second method adopted by Mr McQuillan to establish that the stock figures in the audited accounts for 1975 and 1976 were incorrect made use of a calculated figure called the stock/turnover or stock/sales ratio. This was stated to be the ratio which the figure for stock at the end of a company’s financial year bore to the total sales for that year. Mr McQuillan employed the figure for stock/turnover ratio in this way. First he referred to published statistics of stock/turnover ratios for companies manufacturing bone china in the United Kingdom. These disclosed stock/turnover ratios for companies such as Wedgewood ranging from 2.7 for 1979 up to 3.5 for 1984 and for Aynesley ranging from 3.4 for 1979 to 2.9 in 1982. These Mr McQuillan thought were normal ratios — what he would expect to find. He said *398 that in his experience of companies in manufacturing industry, the maxumum stock/turnover ratio was of the order of four. A ratio of three was good, a ratio of six he thought was not really possible.
He then took the figures for end of year stock and for annual turnover or sales shown in the audited accounts of Royal Tara Ltd for a number of years and he calculated the stock/turnover ratios for these years as follows:
1971 stock/turnover ratio of 36
1972 stock/turnover ratio of 42
1973 stock/turnover ratio of 28
1974 stock/turnover ratio of 15
1975 stock/turnover ratio of 12
1976 stock/turnover ratio of 5.
Mr McQuillan thought these figures were absurdly high and the conclusion he came to was that the figures for stock in the audited accounts for these years were not correct.
He said that the 1971 accounts for eleven months to 30 November enabled a stock/turnover ratio of 6 to be calculated. He then chose to use this ratio of 6 and to calculate stock for Royal Tara China Ltd for each of the years 1976 back to 1971 by applying it to the figures for sales recorded in the audited accounts for each of those years. And the stock figures thus calculated he claimed showed that the figures for stock shown in the audited accounts for those years were incorrect.
In cross-examination it was put to him firstly that the published United Kingdom industry figures related to manufacturing companies which were giants in the industry but that even the smallest recorded were carrying on business on a totally different scale compared to Royal Tara China Ltd and were not comparable. Mr McQuillan accepted that they were all very much larger but did not agree that this made it unfair and unreliable to make any comparison between them. It was also contended by the defendants that a company such as Royal Tara China Ltd chose its own financial year end, that it could chose a time when business was slack and stocks were at their lowest and that the year end balance sheet figures did not necessarily reflect the average of figures throughout the year. Mr McQuillan accepted these contentions were correct. He was not prepared, however, to accept as a general statement that smaller companies had a bigger capacity for significant change from year to year.
In regard to stock/turnover ratios Mr Michael Norris said that they were influenced by the underlying type of business which was being carried on, by economic and business factors, for example market demand and mangement style or requirements. He thought these latter were more important than the type of industry. In time of recession when customers knew they would have no difficulty in getting supplies the tendency was to leave stock with the suppliers and order when it was required. When business was brisk and demand was thriving the opposite occured. Here this company, Royal Tara China Ltd, was small; Mr O’Sullivan knew his customers well and his management style was to make or produce when orders had been received and to shift the stock as soon as the orders *399 were complete and available for delivery and that this would tend to leave finished goods stock at a minimum. He said that this company was a small company, its year end was 31 December, a period when the company was closed down for holidays, and the policy and practice of the management had been that all stocks which could be shifted would be shifted before this annual close down and that this would have a direct effect on the stock/turnover ratio. He also said that in his experience stock/turnover ratio was not used as a basis for an audit judgment. It was normally used as an indicative factor showing what a company’s commercial position was.
I have considered the evidence relating to this second method devised by Mr McQuillan as a check on the correctness of the audited figures for stock in the accounts of Royal Tara China Ltd. I think he begins by taking a stock/turnover ratio of six quite arbitrarily in one sense; in another sense as a figure which he judges acceptable as it was thrown up by the audited accounts for the eleven months to 30 November 1977. This was the year in which Mr O’Sullivan died and there are several factors which may make it untypical of the previous years. However, Mr McQuillan employed this stock ratio of six to recalculated the stock figure for 1975 and 1976 in order to use the stock figures so calculated as the standard by which to judge that the recorded stock figures in the audited accounts are incorrect. I do not find this a reliable basis for making such a judgment and I am not at all persuaded, by the use of this method of calculation, that the stock figures in the audited accounts for 1975 and 1976 are incorrect.
In conclusion, therefore, in considering the plaintiffs claim that the figures for stock in the audited accounts for these years were incorrectly stated and thereby resulted in a misleading and false calculation of the profits and loss for those years, I find that the plaintiffs have failed to discharge the onus of proof which rests upon them to prove their case on the balance of probabilities.
In these circumstances it is not necessary for me to consider whether, in entering into the agreement of 4 November 1977 with the vendors, the plaintiffs relied upon the figures in the audited accounts for 1975 and 1976 which have been challenged. Nor do I need to consider any question of damages.
The plaintiff’s claim fails and will be dismissed.
Haughey v J & E Davy t/a Davy
[2014] IEHC 206Judgment of Mr Justice Peter Charleton delivered on the 10th of April 2014
1. James Haughey, the plaintiff, was born on the 5th July, 1985 and is now 28 years of age. Both his parents are dead; his mother since 1998 and his father since 2002. He has no brothers or sisters. Nor does he have either close relations or committed friends to look out for his interests. When he was aged 8 he had a stroke. Two years later he suffered a more serious stroke. He was badly afflicted, losing mobility and impairing swallow. His late father, a medical doctor, gave up work and committed himself to his rehabilitation as did his late mother. Considerable progress was made. The family moved from Ulster to Dublin and James Haughey attended, first of all, Saint Michael’s College on Aylesbury Road and then his father sent him to Clongowes Wood College in County Kildare as a boarder. While at this school, his father died. Considerable friendship was shown to him by his classmates; although much of it transpires to have been formal and to have been directed by the Jesuit priests running the school. These priests also determined to look after his interests and to ensure that on leaving school he had some achievement to his name. He was therefore named head of the debating society, a similar position to that held by him, for whatever cause, in his prior school. He went to University College Galway and struggled to graduate in law.
2. The defendant J&E Davy is firm of stockbrokers. Their documents are quoted as they were written. The firm professes considerable expertise in stocks and shares. It advises clients as to the appropriate form of investment for them once the representatives of the firm get to know the prospective client and what their aims are and financial resources and acumen are. Davy can be used simply as an agency for the purchase and sale of stocks and derivatives, bearing no responsibility as such because all decisions are those of the client with no input from the firm. Davy can also take over a sum of money or a set of investments from a client and can use its undoubted expertise to invest in financial instruments at its own discretion. Between these two extremes is the advisory account, where Davy advises clients as to the appropriate course but where the client is free to accept or reject that advice. That is the kind of account that James Haughey had with Davy from the 25th August, 2005, a month after his 20th birthday. By signing up to such account, James Haughey also agreed to pay the fees appropriate to that service to Davy.
3. There has been considerable debate over the course of the very long and many days of this trial as to the capacity, intelligence and shrewdness of James Haughey and as to how he would appear to those advising him. There has been no debate as to the capacity of Davy. It is accepted by all that the firm is distinguished and able. The kind of investment into which, in heavily disputed circumstances, James Haughey engaged with Davy was contracts for difference. This is not just the simple buying and selling of stocks and shares. Using round figures for the moment, on this, James Haughey would say that under the tutelage of Davy, he gained €2 million and lost €3.5 million, paying the firm for its services commission and charges close to €400,000 in the process. Damages are claimed in the sum of around €2 million. In that regard, he claims that Davy were negligent and in breach of contract. Davy reply that any bad decisions were those of the plaintiff James Haughey and that as regards its statutory, contractual and advisory duty, it was careful and prudent and dispensed its expertise appropriately. Succinctly put in closing submissions, the plaintiff was foolish. In addition, the approach of Davy to investment was said to be above criticism as were the checks and balances inherent in its organisation of clients in their relationship with stock dealers. Paradoxically, the most serious criticism of the structures of Davy, as to its checks and balances, came most tellingly from the senior portfolio manager of Davy closest to these events.
4. Since this case is almost entirely fact-dependant and since the bulk of this difficult trial has been taken up with a minute and repetitive analysis of the character and attributes of James Haughey, it is as well to recall the function of a court in matters of fact. A court is to hear everything relevant, to compare testimony and documents with all of the evidence, to approach an adjudication of all issues on the basis of shrewdness and common sense and to carefully look and listen to every witness while bearing in mind that the burden of proof rests with the plaintiff. The ultimate issue is what he court accepts and the liability that may arise from facts proven as a probability. In this case, while recalling the warning that “there’s no art to find the mind’s construction in the face”, demeanour and attitude has proven of assistance in determining where the probability of the truth lies. The Court has watched everything and ignored distractions. Whereas Dr. Damien Mohan, assessing James Haughey for Davy, has, in his capacity as a psychiatrist, characterised this case as one of investor regret, there are others who might feel, or it is argued for the plaintiff ought to feel, regret in a case such as this: stockbrokers. None of these financial dealers were subjected to the rigorous testing which the plaintiff James Haughey had to go through. The Court has also seriously borne in mind any untruths that have been alleged against James Haughey and that exaggeration and more has been shown to attend his testimony when his interests might be advanced and that diversion towards others as to responsibility has on occasion been the answer when he has been challenged on issues. But, it must be noted, the plaintiff is not the only witness in respect of whom considerable care needed to be exercised. There was as much to doubt and more about the defence testimony as well.
5. As stated, James Haughey is central to this case. This action was about him and not about anyone else who may have lost on financial products with this or any other financial service provider. The Court’s findings of fact as to the capacity of James Haughey therefore follow.
James Haughey
6. James Haughey is not as Davy have chosen characterise him during this hearing, but nor is he a person in the full of his intellectual, physical and mental health. Furthermore, that situation is obvious to anyone interacting with him over anything but the briefest encounters. His manner of speaking, his choice of words and the way in which he physically holds himself would put any observer of average perception on warning that his condition was seriously different to that of an average man of his age. He has a perceptible speech impediment; he talks in a very unusual and high pitched nasal tone of voice; he uses his hands when speaking in an unnatural way; his choice of words is sometimes inappropriate; his reasoning can be circular; his knowledge of financial products, particularly contracts for difference is, even now, seriously defective; and he reacts emotionally to matters that affect him much more than with the large majority of witnesses. It would be clear to any objective observer that he has been physically stricken in some serious respect. Any ordinary observer would be put on enquiry. He is also deeply resentful of Davy. All the findings of fact in this case about him and about other witnesses are made despite his having turned to that firm seeking a job in late 2010 to early 2011.
7. In this case, there has been an unusual amount of parsing of expert reports and analysis of expert testimony. The Court has heard all of this and has read the relevant documentation. Witnesses for Davy have raised evidence that the plaintiff while being examined from a psychiatric and psychological viewpoint was malingering and that results in tests were structured so that James Haughey would appear to be worse than in fact he is. The Court takes all of that into consideration. During one examination, a Mass card and four boxes of matches were taken out of James Haughey’s pockets for no apparent reason. He was cross-examined on this issue with a view to determining that he wished to present himself as a very vulnerable person. The relevant memorial card was for his late mother and is an intensely personal item; something of the kind that perhaps many people carry in a less obvious form. The boxes of matches were a springboard for questioning which resulted in a statement in the witness box that he intended to take his life into its own hands should he lose the case. The Court can have no regard to this. His despair, however, is real. Dr. Damien Mohan, consultant forensic psychiatrist, saw his vulnerability as genuine and advanced the view that he was likely to accept advice from a professional person in consequence. He regarded suicide is a very real risk. This evidence is accepted. Of all the witnesses, Dr. Mohan was most explicit in describing some of the answering of James Haughey during interview as being deliberately approximate for secondary gain. Apparently, this is something called Ganser’s syndrome but, whatever it is, it is at least as familiar to judges as to psychiatrists. Into the mix of opinions given on the issue of malingering, non-cooperation and the deceit of testing psychiatrists and psychologists must be put the obvious resentment towards Davy and every emanation of Davy which was apparent in the evidence of James Haughey. There is no simple answer as to why certain tests did not marry well with others but simple deceit as a facile explanation is not one which the Court is prepared to accept.
8. Many of the tests showed alarming degrees of impairment. Dr. Simone Carton spent five hours with James Haughey on 22nd January, 2014. Her assessment was both thorough and compassionate. In common with the opinion of other experts, she found good verbal skills and good verbal conceptual reasoning; though these scores were lower than what might be expected of someone with his ostensible qualification of a law degree. Probably, as one expert said, this verbal ability carried him through his time as a student. She found him engaging with her and appropriate in giving a lot of information, though exhibiting more than expected emotion on some issues. Considerable empathy was apparent from her approach and it was likely to yield reliable results. She described him as having the cognitive capacity for financial transactions and described the written application to join Davy on a graduate program as comprehensive, selective, elaborate, detailed and competent. Cognitive capacity for financial transactions may be likened to a very high mountain, however, covering everything from simple purchases at the foothills to more hazardous and demanding things the higher up you go. On many of the tests, however, James Haughey was well below low average ability, including on new learning ability, executive functioning, verbal fluency and effort. These results are not inconsistent with those of Dr. Niall Pender who found him of low average on many tests and on short story recollection but well below average on complex visual design. He described him as having difficulty with coming up with information quickly and with strategic problem solving. The more the load, he said, the tighter the timeframe and the more complex the task, the worse James Haughey performed. This is a reasonable and probable opinion. Professor Peter Kelly, an expert on stroke medicine, described James Haughey as having very mild dysarthria and very mild arm function interference. He saw his gait as having appropriate symmetry and he saw no evidence in the limitation of independent decision-making. He declined to express any view on the issue of complex decision-making. The Court is satisfied that decisions on contracts for difference involve a high level of intellectual functioning and require complex decision-making which are well beyond the intellectual capacity of James Haughey. The few light moments in this case came around when medical experts of high intelligence and qualification were read passages from Davy documents and expert reports describing how these instruments work and how the financial consequences may play out. It is clear that all of them who were asked these questions were completely at sea without navigation aids. It was said by the financial expert called on behalf of Davy, Paul Keenan, that it is possible to explain these instruments and the consequences of investing in them comfortably within the space of an hour. Nothing in the course of the case suggests that that this could even possibly be true when dealing with a person of average to high intelligence, never mind a person who is impaired. That opinion is not accepted.
9. There are two results in this case with which no one can quarrel. When, in late 2010, James Haughey decided to seek employment in Davy through a graduate program that would have seen him enter more fully into the world of stockbroking for a fixed period, he was required to take two tests. There had been considerable vagueness by Davy as to the nature of these tests and it took persistence before any information as to what they were supposed to indicate emerged. As it turns out, these are general intelligence assessment tests which can be applied to any group in the population with a view to testing their overall abilities in questions of mental agility. There can be no doubt that James Haughey wanted to get a job. There can also be no doubt that, for whatever reason, he saw Davy as a place where he might work. He overestimated his abilities. On each of the tests, in terms of the general population in Ireland, he came below the 13th percentile. Dr. Mohan, who was strong on the malingering explanation for the presentation of James Haughey, was asked to estimate from his meeting with him as to where he might come under tests such as this. Dr. Mohan estimated that he would come in or around the 50th percentile. Insofar as some distinguished medical people have said that the disability of James Haughey was mild or was not easy to discern, this clashes with the finding of the Court. It is partly explicable, however, on the basis that while the medical witnesses were correct in describing James Haughey as recovering well from a serious stroke, they are much more used to dealing with persons who were very seriously impaired and with whom they were perhaps favourably comparing him. That viewpoint does not apply to stockbrokers or to anyone else engaging with James Haughey. There the comparison is of an ordinary person of business and on this James Haughey demonstrably does not measure up.
10. In terms of education, the results can be plainly stated. James Haughey categorised himself as having done a “mediocre Leaving Certificate”. He had extra time for public exams and dictated his exam answers. In applying to join Davy, he misstated his results to make them better. Similarly, he achieved entry into University College Galway on the basis not of results but of a laudable access program for persons with a disability. His academic transcript is alarming, with several failed exams and repeated exams and exams which seem to have been excused or put off. There are no brilliant results which could leaven this with any sign of real comprehension of particular aspects of law. He ended up with a third class honours degree. While in Galway on the access program, he was given a scribe who transcribed his lectures and emailed him the typed notes. This is because his fine hand movement cannot cope with swift writing: even his signature on superficial examination would make one wonder. His time in university was far from easy. He was, and is, in many respects an outsider and must have found the social superficialities of student life a trial. A priest of the Roman Catholic faith helped and supported him through his time in university. However, perhaps following the tragic death of a friend who seems to have been a very decent individual, and certainly as a result of the strains of college life and of managing property, he ended up in the psychiatric unit of Galway University Hospital from the 2nd the 6th May, 2007. There he was treated for depression. Like a lot of people, he did not follow-up properly with outpatient treatment. This date is important, as is this event. Also important is the fact that James Haughey shows no sign of holding back on personal details when talking to people.
11. Apart from finding university a strain, in addition to that, having inherited property from his parents, he found travelling around to manage these properties and to deal with tenants severely discommoding. In his application to Davy, there is a description of the merits of the candidate, namely him, which is fluent and appropriate. It is highly probable that his late friend helped him with a general template for job applications and it is more probable that the exaggeration of his university and school results arose more naturally from his desire to achieve at least an interview than from whatever mild prompting as to the value of exaggeration he was given by any employee of Davy. It is also probable that there was such prompting.
Contracts for difference
12. A simple explanation of how contracts for difference work occurs in a passage in the evidence of Joe Motley, the financial expert from Clarus called on behalf of James Haughey. Financial people call these CFDs, though it might be noted that the Bank of Ireland recorded them in one inadmissible document as “CDFs”. The Court has no regard to this. As Joe Motley’s analysis was put to a number of witnesses, including medical experts, it is now quoted:
CFDs are, very simply, a form of margin investing. When acquiring a position in a share declined is required to contribute only a portion of the underlying position value in cash. The proportion varies typically from 10% (four large-cap liquid shares) to 20%. That cash (the “margin”) is deposited with the CFD broker… and the client receives a small rate of interest on it. The client is exposed to the full fluctuation in value of the underlying position, and if the position value falls he may be required to contribute further cash margin. The full acquisition coursed of the underlying position is financed by the CFD broker, and the client pays a financing rate on that amount which is set at the CFD broker’s cost of financing plus a fixed margin. The client also pays dealing commission on the trade, which is determined by reference to the size of the underlying position rather than the size of the margin. CFDs may also be used to take a ‘short’ position in the stock (which is otherwise difficult for a private client to do). In that case the client is still required to put up margin in the 10%-20% area, but he now receives the financing rate on the position value. However in this case the fixed margin is deducted from the financing rate. When ‘long’ stock via CFDs, any dividend income is credited to the client, but when ‘short’ it is deducted from the value of his position. CFDs offer three attractions for clients who are interested in speculative short-term trading: they provide leverage for the client who wishes to take more risk with a given amount of cash than would be possible through direct purchases of shares; they facilitate ‘short’ positions; stamp duty on purchases (1.0% on Irish shares and 0.5% in the UK) is a significant transaction coursed for active traders in the cash market, and CFDs provide a way to avoid it.… The client’s risk level in a CFD position is determined by the size of the underlying position. Furthermore, it must be noted that short positions are inherently more risky than long. On an un-geared basis along position cannot lose more than 100% of it opening value, whereas there is no theoretical limit to how much can be lost on a short position.
13. Whereas CFDs are represented by firms dealing in them as perfectly respectable, some examples might suggest to reasonable people that they are seriously risky. One does not buy anything tangible and, furthermore, by staking a small percentage of a cost, one borrows to embrace the apparent totality of an instrument. To take the short position question briefly touched on by Joe Motley in the above quote, but much more fully explained in evidence: a client can decide to go short for 10,000 positions in Ryanair shares at €6 of which you will pay 10% of the €60,000 value at a cost of €6000. Where someone is taking a position short on a CFD they are, according to the elaborate explanations before the Court, looking for the shares to fall. Were the price of Ryanair to travel to €18, the client would lose €174,000 for a €6000 stake. This is said by Davy in testimony to be highly unlikely as are the other extreme fluctuations which can be calculated in respect of both short and long positions through a CFD purchase. This is taken into account. But, in reality, CFDs fluctuate over a very wide band and one that is exaggerated by the lack of a concrete position, namely owning the share, and by borrowing to purchase the shadow image of a position on its price. The financial analysis so carefully done by John Harding ACA shows very serious fluctuations towards the end of the approximately two and a half year cycle of CFD dealing that is in issue in this case. The Court is grateful for this objective analysis. It was most helpful. This kind of derivative instrument is suitable for those who are prepared to risk the investment of their money speculatively and have the wealth to do so. By spending only 10% of the share price, a client obtains a position on a share but never buys the share itself. If things go wrong in terms of what way the CFD is called, long or short, the client has nothing to sell. All the client has is leverage, of which some portion, a tenth or a fifth, has been paid already. The CFD provider must purchase the shares or must be in a position where books are balanced by an equal number of speculators going long and short on a similar number of interests in the shares. On going long for 10%, a fluctuation of 10% means that the entirety of that stake is lost. Over time, money can be lost on shares and money can come in on the ownership of shares but over a much shorter period of time the entire stake in a CFD can be lost. Of course, over a short period of time an enormous gain can also be achieved by a speculator investing in these instruments because the amount staked is multiplied by 10 in terms of the result achieved through share fluctuations once a long or short position is correctly prophesied and where the position is encashed at the optimum time. Some tax is also avoided.
14. In a long position, the loss of 10% has been attributed by Paul Keenan, the expert in this case for Davy, as being equivalent to a wake-up call to the investor. If one has several positions in several different shares, or even only a few, or if one has one position which is long and a number of positions which are short, shrewd attention to detail is called for if these alarm bells are to be correctly interpreted. But there is another and even more serious disadvantage to trading in CFD positions. Everyone knows that shares may go up and down. Every graph of financial markets, except in extraordinary times, will show a trend either upwards or downwards but one which is characterised by peaks and troughs in the wave that represents the share price. If a 10% position falls by 10%, the stake is entirely lost and the upward bounce, as apparently it is called, for a long position, or the downward fall for a short position, is a considerable temptation for the investor. This is because once the stake is exhausted by the movement in the share price there is nothing to hold onto in order to wait for the expected opposite movement. In order to do that, for the position to be held, another stake must be proffered in cash. A series of cash calls can be answered from an investor with yet more money in order to hold a position that may be hopeless but which may be perceived to be profitable in the longer term. In contrast, in the long term, on actually buying a share, an investor holds a share in a firm. If the share price goes up or down 10%, the investor holds the price of a saleable commodity to 90% or up to 110%, but it is still a saleable commodity. In reality, a person entering into a CFD, while holding a 10% stake is, in fact, borrowing the entire of the money required by the provider to purchase the shares, namely the other 90%. People have a natural reluctance to borrow money, but this is essential to commerce. In taking a CFD position, it is not obvious and needs to be carefully explained that large sums are being borrowed for the stake: 90% in the case of a 10% payment. It needs to be spelt out to anyone who buys a CFD that whereas they are staking 10% of the price, they are paying for the interest on borrowing the remaining 90% of the price. That borrowing is part of the way that the provider finances its position on the shares; that is by charging a rate of interest which is above the London Interbank Offered Rate, commonly abbreviated to “LIBOR”. What did not emerge until later in this case, was what was certainly unknown to James Haughey, namely that some percentage of that profit due to borrowing being charged to the client by the provider is returned by the provider to the broker, in this case Davy, through whatever private arrangement is set up as a matter of contract whereby the broker chooses a particular provider. The rate of return was apparently not known to the portfolio managers who gave evidence in this case— at least that is what they claim — and is only known, the Court is expected to accept, at a high level in broker and provider undertakings. When staking 10% or 20% of the price a return in interest is made on that small sum of money to the client by the provider through the broker but this is at a much lower rate than the rate for borrowing and hardly offsets the cost of holding in a CFD position at all. This was unknown to James Haughey.
15. Davy claims to have provided high levels of explanation to James Haughey before he entered into any contract for difference. Among the documents used was one of 25th August, 2005 which showed examples of paired trades, ratios of trades and the profit resulting from a short position. It might be noted that there is no example of the loss resulting from a short position. The document purports to explain what a CFD is, describing it as “a product traded on margin which, allows a client to trade long or short of stock to mirror the performance of the underlying share.” Then the document lists the following as the characteristic aspects of a contract for difference:
Trade Short as well as Long: Trading a CFD is a convenient and cost-effective way of mirroring the potential fall in the underlying share. A short position in the physical equity could be opened with a stockbroker; however, the cost of rolling this position at the end of every settlement period would prove highly expensive.
Cost Effective: No Stamp Duty is incurred when trading a CFD as the client is not physically buying the shares. This means, however, that the CFD holder is not normally entitled to any voting rights or perks.
Gearing: Holders of a long or short CFD position are required to deposit margin as collateral rather than pay the full underlying value of the stock. Margin requirement will typically be 20% of the full contract value. CFD’s are available on Technology and other volatile stocks but may attract a higher deposit margin.
Hedge Risk: A client might also be able to take advantage of the opportunity to sell a CFD short if he is the holder of the physical underlying stock. He may believe that the stock is due for a short-term correction on the downside, and would therefore sell the CFD short to protect his profits and potentially control the timing of any UK Capital Gains or avoid the cost of selling and buying back of a share.
Expiry: Hold your long or short position for as long as you like. A CFD has no settlement date. It is an open-ended contract. We also offer a CFD future with fixed maturities – see page 12 for details. [There is no page 12]
Dividends: A holder of a CFD is entitled to 80% of the net dividend. However, a client who is short would be liable for 100% of the gross dividend.
Corporate Actions: As the holder of a derivative position, you do not have the same rights as the holder of the underlying. However, Cantor CFDs will, in so far as this is possible, allow you to participate in any corporate actions which might arise.
Financing: A client holding a long CFD position will be liable to overnight financing charges. Cantor CFDs has financed the value of this trade and charges are spread over LIBOR for this service. With Cantor CFDs on a short CFD position the client will be entitled to a daily rebate.
Execution: CFDs are available on the FTSE-350 stocks, UK stocks of smaller capitalisation as well as on any US and European shares. Approval for a very low capitalisation stocks will need to be sought prior to trading. Trading a CFD is exactly like trading the traditional stock market and confirmation is either immediate or on completion of the order.
Commission: A small commission charges made each time a contract is opened or closed.
Taxation: Any profit on CFDs may be subject to CGT (Capital Gains Tax), but losses may also be offset against CGT.
16. None of this is easy to understand. Certainly, it is difficult without a serious analysis of the nature of contracts for difference, together with appropriate explanations and perhaps with appropriate checks during the learning process as to whether a client of even lively intelligence has absorbed the information prior to making a decision to move away from trading in actual shares, or shares purchased for cash, as opposed to staking 10% or 20% of the value of stock on a contract for difference in the hope of leverage upwards or downwards on the margin giving a return as if a 100% position were taken. A CFD position can, in general, according to the testimony in court, be gotten into or gotten out of very quickly. So, it is to be wondered as to what explanation was ever given to James Haughey by Davy as regards the nature of these instruments and how a loss of high magnitude can be very quickly made on them either by taking a short position or by taking a long position and then being tempted by adverse circumstances into keeping the position open to answering further cash calls.
First contact
17. James Haughey did not initially go to Davy with a view to entering into any contract for difference in shares. The Court accepts that whereas he may have heard of a CFD he did not know what that was. He had done some dealing in stocks and shares before, but only of the ordinary kind. Davy present this as evidence of expertise and also of long dealing, but James Haughey was then barely two years past his 18th birthday. As to what happened, there is a stark conflict of evidence. At least the beginning of the crucial day of 25th August, 2005 is undisputed.
18. Among the properties which James Haughey had inherited were two rented houses in Drumcondra. He had to manage these properties himself and he did not have a property manager or agency. On that day, he collected rent and then went into Bank of Ireland in Drumcondra because an idea had occurred to him. Recollecting family meals in Jurys, happy occasions when he stayed there with his mother and father, he decided to buy into that hotel group in the form of Jurys Doyle as traded on the Irish Stock Exchange. Davy present this as a shrewd financial choice. The Court does not accept that. The amount which he had to spend was up to €200,000 and while there was a share trading desk in some banks, this was beyond their limit. He was therefore put into a taxi by Bank of Ireland and sent to Davy, a firm with which he had no previous contact. He indicated the nature of his business and met Niall Kelly. They waited together for about 10 minutes until Anthony Moyles became free. This is where the conflict in evidence begins.
19. Anthony Moyles describes his recollection of James Haughey at this first meeting as being small in stature. He claims that they spent “well over an hour” on different topics, and over that time he noted his form of speech to be deliberate and with an unusual accent but not as manifesting any impediment. The form of speech was described as being similar to that over the six days of the cross-examination of James Haughey before this Court. A clear impediment was manifested in the speech of James Haughey during this hearing. To fail to have noticed it and to fail to have been put on warning of potentially serious underlying problems is highly improbable. Anthony Moyles said that a stroke was mentioned but that James Haughey made light of it, describing it has not affecting him. He said he had €5 million plus to invest in a share portfolio and that he had finished first year law and English in UCG. He never got the sense that James Haughey did not know what they were discussing and or had any problem in understanding anything. On the plaintiff’s age Anthony Moyles said: “okay, he was 20, but we get all kinds in Davy.” James Haughey was described as being determined in his view, the implication being that he was unbiddable (something that this Court does not accept). James Haughey was described as being a person who manifested serious knowledgeable in shares, mentioning values and particular stocks such as Zara, Indetex, European Aerospace; and as a person who had familiarity with financial markets, read the newspapers’ financial pages and financial magazines. It was very late in the hearing before ‘The New Yorker’ was curiously identified as one of these. Anthony Moyles would rate James Haughey on the basis of that meeting, where 10 is an experienced investor’s knowledge of stocks in the financial markets, as ranking around 6 to 7. He explained to him that Davy offered discretionary, execution only and advisory accounts and that to trade in CFDs a customer would have to open an advisory account. He says that he explained by reason of examples how CFDs have multiples in terms of profit and loss and how these would result from engagement with these financial instruments. This was clearly explained, he asserted, as was the difference between buying shares in the hotel group and engaging in positions on contracts for difference on that stock. The relevant leverage was 20% for Jurys Doyle. The margin call was explained as being a risk control. He assessed James Haughey from the point of view of the four key components of stockbroker-client interrelationship, namely wherewithal, knowledge, risk appetite and objective. He explained that there would be an interest charge on the full position. Forms were produced to James Haughey explaining the nature of the risk, the nature of the relationship and the nature of the product and it is asserted that these were gone to through carefully. These were signed in front of him. On the face of at least one of these explanatory forms, if the wording is correct, it was designed to be taken home and studied and then signed. While the meeting lasted over an hour in fact, it would have needed less than an hour the Court was told. The forms were then completed by being signed. These were not filled out because Anthony Moyles had a full picture of what James Haughey was like. That is Davy’s case. Or, it was said, if the forms were not to have been filled out properly it was the job of the document section within Davy to bar him from acting. That document section never came back to stop him. That was a serious failure by Davy in appropriate controls. Anthony Moyles, he said, was impressed by James Haughey, a person who at 20 was managing property and doing a law degree. He did not know that James Haughey had gained a place in university on an access program for persons with disabilities who use a scribe. He saw him as engaging in speculation and noted him as being well aware of the risks involved in CFDs. Part of the reason that he saw him as engaging in speculation was that anyone who is prepared to put the amount eventually used that day, being €175,000, on a single stock fitted within that category. There was also limited evidence from Niall Kelly. He said he had no clear recollection of the meeting but did not notice anything unusual about this client. He did not recall what was said in relation to the nature of any talk about CFDs. It is possible that his recollection is a blur.
20. James Haughey described the meeting in a radically different way. He had gone in to purchase shares with a sum of in or around €175,000 but came out of the stockbroking firm with a long position in contracts for difference on that stock and a liability five times higher, potentially, than he had wanted. This was a reference to a 20% stake. He did not understand what he was doing. He described Anthony Moyles as saying that he could buy shares in the normal way or that we could enter into these instruments. Lots of terms were used like leverage, margin calls, limits, et cetera which he claims he did not understand. He was told that engaging in CFDs was normal and that 40% of share trading was done in this way on a particular Irish index. “Highfalutin terms” were used so much so that at times it was as if Anthony Moyles was talking in Latin. The choice presented was one of either making modest returns in share dealing or of joining “the big boys” in what was presented as the CFD club. The prospect of making 10 times the relevant profit was put forward as a typical possibility, though here the leverage was 20%. Standard forms were put in front of him to sign. These were not explained. There were flashed in front of him by Anthony Moyles for signature and not read out. They were put in a file. They shook hands. Anthony Moyles said that he would be in contact. Thus it was that this unfortunate series of events began according to James Haughey.
21. What has been lost sight of in the Davy presentation of events is how serious this meeting was and how it laid the foundation for a set of transactions generating fees spanning two and a half years. This, while profitable at times, ended up with a serious loss for this plaintiff. It was perhaps too easy for anyone to fall for the attractions of the apparent wealth of James Haughey: in an ancestral adage déanann ciste cairdeas. Whether folk wisdom is appropriate now or not, there is a serious legal duty on any stockbroking firm selling financial products which may or may not be suitable for particular client to find out who that client actually is. The Court accepts that James Haughey was encouraged towards investing in contracts for difference by Davy. This was inappropriate to him. Further, every system dealing with money must have checks and balances. It is improbable that any stockbroking firm would attempt to stand over a process which involves the careful filling in of forms as being adequately transacted when the relevant forms were not filled in at all. Regrettably, that has been the position adopted in this case by Davy. Whereas James Haughey in the course of the hearing walked himself into a situation of alleging that forms were filled out in blank and then filled in later by Davy and whereas this has been criticised, the actual situation is not impressive. After James Haughey had signed the application form to join Davy as a client, he was given a client number on the form in his absence; this is ordinary administration and above criticism. In his absence, as well however, he was ranked as a “gold” client and someone with an “aggressive” disposition towards investing. The reference to the precious metal, the Court was expected to believe, and sees no reason to accept, was something to do with the number of forms that might to be sent to him over a year or perhaps something to do with his financial wherewithal or perhaps not. As to an aggressive approach to the stock market, with any degree of care being exercised this would be something that might responsibly be teased out over weeks or months. Exercising any kind of even minimal duty of care, the result of an ill-considered approach can be financial ruin. Does the client really want that? This is the kind of question that a stockbroker should ask. On the form James Haughey signed on foot of a declaration as follows:
I hereby declare that the information given on this form is correct and if any of this information changes materially, I undertake to inform you in writing without delay. James Haughey. 25/08/05.
22. Any such declaration is very serious as it is key to the service being paid for. Absurdities have been talked over days about this form. Reality must be faced. It is a blank form. There is no information given. The document contains serious queries about the particulars of the information sought which would be necessary for any stockbroker to offer any kind of an appropriate service to the client. Even the contact details were left blank. On one other form an address was given for James Haughey as being care of a particular street in Ranelagh where hundreds of people live in scores of different but similar terraced houses. The result is that there is uncertainty and more as to what this particular client received by post. That is just not careful work. Various addresses were used for communication.
23. In the form, the client is asked to rank his attitude to risk as between 10, speculative, and 1, conservative. This is blank. The client is asked to describe his investment knowledge and experience as between limited, at 1, and extensive, at 10. This is blank. The client is asked to indicate the approximate value of investment holdings as between a range such as deposits, An Post savings accounts, unit trusts, shares, options, unquoted shares, property apart from the home and other. This is blank. The client is expected to indicate the source of his income from employment, from rental and from other. This is blank. The client is asked what his current pension arrangements are and this is blank. The client is asked for any further information that he may feel is relevant. This is blank. The client is asked as to his initial investment amount. This is blank. The client is asked about his investment objective, whether it is growth, income, guaranteed growth or income and growth. Another very good question, except there is no answer. The client is asked what income he expects from his investment but this is blank. The client is asked what time horizon would be appropriate for his investment from up to two years to over five years and this is not filled in either.
24. Davy makes the case that seeks to justify this on the basis of a pen picture taken down by Anthony Moyles. Hours were spent on this pen picture and the bits that were right and on the bits that were wrong. Every attempt to justify this pen picture was futile. Here is the pen picture:
Personal Information
James Haughey. 5/7/85 single. Both of James parents are deceased.
His father died about 10 years ago and his mother died last year. He suffered a mild stroke himself in 2004 but he is in great health and does not seem to be suffering from it.
He is a resident in Ireland and enjoys watching all sports.
Intro Source:
Niall Kelly of the execution desk got a call and introduced him to me.
Investment Objective
James wants to buy one specific stock for the time being. He has been buying shares for over two years and his approach is that when he thinks the shares cheap he goes for it. He does not want to build a portfolio as yet but instead buys certain equities and reduce the downside risk by placing limits.
He will eventually look to diversify out of his large property portfolio. He has properties in the North of Ireland and in Dublin. He has already begun to divest and move into equities and he will be accelerating this process over the next 6-12 months.
Investment Knowledge
He has excellent knowledge of the market. He does a lot of his own research. He reads all the financial press and is well up on the working of the markets. He has just completed his first year in Law and English in NUIG.
Risk Attitude
James will take a loss of risk. He is willing to open a CFD product and to leverage up to purchase his specific stocks. He has again limited his downside with the use of stop limits, and he is well aware of the risks involved with the CFD’s.
Business Info
James is a student.
Source Money
James inherited over €5 million worth of property and cash deposits from his Mother and Father. He has most of the properties rented out at present and currently lives off the rental income. I have talked to him about diversifying his portfolio and possibly looking at sheltering his rental income. James has expressed an interest in meeting me again in a few weeks after this initial deal.
Ethical Preferences
James has no ethical preferences.
Correspondence
James would like all correspondence to go to his solicitor.
James Haughey, c/o 18 Upper Beechwood Avenue, Ranelagh, Dublin 6.
25. Apparently, there was another short meeting between Anthony Moyles and James Haughey in June, 2006 when the CFD provider’s account moved from Cantor FitzGerald to IG Markets. The result is even worse. The Court was told that there was no discussion of the parents of James Haughey at the initial meeting, or none to speak of, and yet the parents are on both of these forms, his father having died about 10 years ago and his mother the previous year. He is described as being someone who enjoys “watching all sports.” In the form from June, 2006, James Haughey is described for some intensely obscure reason as being a client to whom the designation “silver” should be applied, as opposed to “gold” a year earlier and in fact is called “Jim Doherty”. He is described in both forms as having an excellent knowledge of the market and wanting to take on a lot of risk. A quote may be appropriate:
Personal Information
James Haughey born 5/7/85 and is single. Both of James parents are deceased. His father died about 10 years ago and his mother died last year. He suffered a mild stroke himself in 2004 but he is in great health and does not seem to be suffering from it. He is a resident in Ireland and enjoys watching all sports.
Intro Source:
Niall Kelly of the execution desk got a call and introduced him to me.
Investment Objective
Jim’s objective is to grow his investment song. I showed him our CFD product and he agreed that in order for him to get a level of return that he was happy with for the year that we would invest the €50,000 into a CFD a/c and leverage it up five times. We would look to invest in good quality companies that we felt offered value.
Investment Knowledge
He has excellent knowledge of the market. He does a lot of his own research. He reads all the financial press and is well up on the working of the markets. He has just completed his first year in Law and English in NUIG.
Risk Attitude
James will take on a loss of risk. He is willing to open a CFD product and to leverage up to purchase his specific stocks. He has again limited his downside with the use of stop limits, and he is well aware of the risks involved in CFD’s.
Business Info
James is a student.
Source Money
James inherited over €5 million worth of property and cash deposits from his Mother and Father. He has most of the properties rented out at present and currently he lives off the rental income. I have talked to him about diversifying his portfolio and possibly looking at sheltering his rental income. James has expressed an interest in meeting me again in a few weeks after this initial deal.
Ethical Preferences
James has no ethical preferences.
Correspondence
Regular meetings and telephone calls.
James would like all his correspondence to go to his solicitor James Haughey, c/o 18 Upper Beechwood Avenue, Ranelagh, Dublin 6.
26. As regards other documentation, the Court has taken all of this into account. As regards documentation showing that James Haughey had not made a final will and testament, this is unlikely to have resulted from him as with his medical condition he is aware that the chances of further strokes are higher than with the general population. It is clear from his testimony that he worries seriously about his health. The attempt by Davy to justify this manifest lack of care has completely undermined the credibility of Anthony Moyles and any other witness from Davy. It is also fair to record that Anthony Moyles in criticising the document section of Davy must be regarded as correct. In any organisation with a functioning set of checks and balances any forms submitted in the name of James Haughey would be analysed one against the other for consistency and any form that had anything material missing should have resulted in a stop being put on any form of trading. Furthermore, the fact that such a situation could pass is negligence. It should have resulted as a matter of ordinary care in enquiries being made at a higher in different level as to what the nature of the situation at stockbroker to client level was. The more the issue of the forms is gone into, the more extraordinary the situation is that emerges. There was no clear idea as to what address the forms were to go to, accepting that James Haughey had a number of addresses. This latter factor should have made the address issue a priority for any administration. This meeting in June, 2006 was not characterised by either side in this case as having added to the sum of knowledge on the part of client or firm. By 2006, apparently, Davy had introduced, perhaps prompted by the move to IG Markets as provider, requirements that a senior manager should authorise the client as being suitable for CFD trading. Did the senior manager read any of this and did he look at the wealth situation, considering was it stagnant or not, after a year of trading with Davy as manifested by these forms? There is no evidence that any degree of care was exercised. Even so, on 12th June, 2006, an apparently senior individual who is described on the form as a “member of the CFD Authorised List” certified that James Haughey was suitable to open a CFD account through Davy, that a total exposure had been agreed with the client and the portfolio manager, that controls were in place within the team to ensure that the portfolio manager maintained that exposure under that particular limit. In fact, there was no limit. The form goes on:
I have reviewed the above named client’s suitability to trade in CFDs. I met with the portfolio manager who will be responsible for managing the client’s CFD account; together we evaluated the client’s financial position and assessed his/her attitude to risk, based on the documentation completed and forwarded by the client and the portfolio manager. I have carefully weighted and considered the appropriateness of this product to the client’s circumstances. I am happy that there is sufficient documentary evidence that the portfolio manager has taken time to discuss with the client the risks, relating to this product, as listed in the Davy CFD risk-warning letter. I am satisfied that the client fully understands these risks.
27. The Court is satisfied that this did not happen and that this form was filled in as a matter of paper covering. These forms were designed for careful execution. In the way they were treated the diligence expected of a stockbroker engaging with a client was rendered meaningless.
28. Many forms were discussed in the course of the hearing and the Court is mindful of them all. What needs to be most concentrated on is whether there was any change from the lack of care manifest in August, 2005 to the taking of care at any time within the limitation period. The Court is satisfied that this never occurred. Particular emphasis has been placed on the terms and conditions of the advisory service. The reality is that this is a contract whereby Davy agreed to advise the client in accordance with the aims of the client and in a way that Davy considers to be suitable for the client. This never happened. The terms and conditions of the advisory service limit liability to deliberate neglect. The initial meeting of August, 2005 demonstrates deliberate neglect. The change and lack of consideration of June, 2006 manifest deliberate neglect. The exaggerations in the job application form of December, 2010 have previously been referenced. In addition, James Haughey filled out a similar form in June, 2006. In this instance, the relevant fields are filled in. The account given by James Haughey, in this regard, is of obtaining that form and having been worried because of a recollection, either from school or university or talk with friends in university, of the obligation of utmost good faith in filling out insurance contract forms, he rang Anthony Moyles. In consequence of this phone call, and while a phone call was going on, the form was filled out in an exaggerated fashion in consequence of the urgings of Anthony Moyles.
29. It is been said in argument that the evidence of James Haughey is utterly improbable and especial emphasis is put on this conflict. That argument by Davy is not accepted. The form is filled out in such a way as to establish a wealth base at least three times higher than the form that was not filled out, but in respect of which the so-called pen picture exists, a year previously. It contradicts this wealth declaration: it is set at “over €5 million” and that is very far from €17.6 million. This should have been queried by the document section of Davy and it should have been queried by Anthony Moyles and it should have been queried and more by the senior manager authorising that James Haughey was suitable for CFD trading. There was a systems failure and a failure in responsibility by higher management. The question is asked on the form as to approximately “how much of these funds are available for your trading with CFDs with Davy?” The answer put in is “no limit”. That makes no sense. It was negligence in high degree to have accepted that form. The ranking given mentally by Anthony Moyles to the financial expertise in terms of investment knowledge and experience of James Haughey had, the previous year, been a 6 to 7. In the form completed by James Haughey in June 2006 his investment knowledge and experience is filled in as 5, which is a “good” level of understanding according to the scale provided. As to experience of trading margined or geared products, James Haughey answered in the negative: that he had none. It is further evidence that he did not understand what was going on. This should have been queried at stockbroker level and, more importantly, at senior manager level. That did not happen. The account of James Haughey on this most contested of all the forms is not improbable. It is probable that there was some input by Davy into the answer is to be given in filling out the forms in June, 2006. A form for an online service by IG Markets is dated 2nd June, 2006 with a view to linking into dealing software featuring live prices direct but this was not completed. This form is only a matter of information; but in the context of this kind of fast moving situation in financial instruments there is nothing more important than information.
30. The question emerges as to whether in August, 2005, June, 2006 and through to February, 2008, Davy, through the persons dealing with James Haughey, were aware of his limitations or at least put on notice that these limitations existed. It is probable in a high degree the Davy were so aware. It is even more evident that Davy as a firm was put on notice of the limitations and that negligently no enquiry was made when manifestly it was called for. Insofar as it may be argued that this was merely notice, the legal duty on Davy was to know the client and what is suitable for the client. The limitations of James Haughey were manifest to the Court during the hearing and it is apparent, as well, but this is not taken into account in the final assessment, that these limitations were obvious to those Davy witnesses who listened to James Haughey giving his testimony. Where someone is put on notice of a limitation, even to the extent of noting that someone has had a stroke, and the notice here was considerably more serious than that, steps should have been taken pursuant to the duty of care of a stockbroker towards his client to investigate what kind of investment might be suitable. Not everybody is the same and it is no shame to say the James Haughey was and is different to the ordinary investor in stocks and shares and in other financial instruments of a more complex variety. The denials by Davy cannot be accepted as probable. It is to be noted that in late 2010 and early 2011, when James Haughey had finally persuaded Davy to give him an interview, an email was sent from Anthony Moyles to another employee of Davy stating: “… go easy on him.” Taken in isolation this might mean nothing, but in the context of everything that has been seen and heard during the course of this hearing this is an expression of shared awareness by the defendant of the nature of the client.
Duty of care
31. Davy owed a duty of care towards James Haughey. This does not require any deep legal analysis. James Haughey was paying Davy to exercise that care. The duty of care owed arose from the contract but was independently manifested in tort. Davy owed to James Haughey the duty of care that is appropriate to an experienced stockbroker towards the particular client when, pursuant that duty of care, the stockbroker has taken appropriate steps to get to know the client and as to what his or her aims are, what his or her means of knowledge are, what his or her financial circumstances are, what the attitude of the client is to risk and, importantly, judged objectively, whether that level of risk is appropriate to that client. If it is not the client should be advised against and in some circumstances more than that.
32. The general duty of care owed may be compared to that which is required of a solicitor to a client. The comparison is appropriate since it is part of the job of the lawyer to ask reasonable questions with a view to ascertaining the true position of the client for the purpose of tailoring the advice accordingly. Here, Davy have continually made the hollow argument that merely taking a pen picture was enough to get to know a client. The implication of the lack of intervention by senior management in authorising James Haughey to trade in CFDs and the failure of the document section to put a stop on the account is that a practice of a sufficient kind was being followed. That is not a discharge of the relevant duty. The matter was put as follows by Henchy J. in Roach v. Peilow [1985] I.R. 232 at 254:
The general duty by a solicitor to his client is to show him the degree of care to be expected in the circumstances from a reasonably careful and skilful solicitor. Usually the solicitor would be held to have discharged that duty if he follows a practice common among the members of the profession… Conformity with the widely accepted practice of his colleagues will normally rebut an allegation of negligence against a professional man, for the degree of care which the law expects of him is no higher than that to be expected from an ordinary reasonable member of the profession or of the speciality in question. But there is an important exception to that rule of conduct… [T]he duty imposed by the law rests on the standards to be expected from a reasonably careful member of the profession, and a person cannot be said to be acting reasonably if he automatically and mindlessly follows the practice of others when by taking thought he would have realised that the practice in question was fraught with peril for his client and was readily avoidable or remediable. The professional man is, of course, not to be judged with the benefit of hindsight, but if it can be said that if at the time, on giving the matter due consideration, he would have realised that the impugned practice was in the circumstances incompatible with his client’s interests, and if an alternative and safe course of conduct was reasonably open to him, he will be held to have been negligent.
33. Share transactions invariably involve risk. It does not necessarily absolve a stockbroker of liability that a client agreed to risk without the needs, background and knowledge of that client being first properly probed and the advice tailored appropriately. As Clarke J. stated on the matter in ACC Bank plc v. Johnston [2010] 4 IR 605 at 639:-
While the duty of care of a professional person is often described by reference to the standards that would normally be applied by a professional of equivalent experience, it is clear from Roche v. Peilow that the mere fact that a practice is universal does not, of itself, immunise the professional concerned from potential liability, if it is a practice which, on reasonable consideration, the professional concerned ought to have identified as giving rise to a significant risk. In that context, it is apposite to note the reference of Walsh J. to a “stock” risk. There is risk in everything. Professionals cannot remove risk from the equation. However, professionals are normally employed to minimise risk or advise clients on relevant risks. Professionals should not expose their clients to unnecessary risk without, at a minimum, advising their clients of the risk involved and inviting their clients’ instructions. The mere fact that there may be a common practice to expose clients to a particular type of risk will not necessarily provide a defence. The ordinary duty of care, therefore, extends not merely to ensuring that the relevant professional person carries out his or her duties in the way in which other suitably qualified members of the relevant profession do, but also extends to considering whether common practices may so obviously involve unnecessary risks which can be eliminated that such practices should not be engaged in. It might be said that such practices are more honoured in the breach than in the observance in the proper sense of that quote.
Against that background, it seems to me appropriate to ask what the point of employing an independent solicitor might be if it is not to reduce the risk that might otherwise lie on the financial institution. As pointed out earlier, a financial institution, by instructing the purchaser’s solicitor to act on its behalf takes a risk. For the reasons which I have set out it would appear to be a risk which, at least in smaller transactions, financial institutions are willing to take in order to save costs. Where, however, the transaction is bigger and the financial institution chooses to reduce its risk by employing its own solicitor, then it does not seem to me to be appropriate for that solicitor to take it on him or herself to expose the financial institution concerned to the very risks which it has sought to avoid by employing him in the first place.
34. Central to any view that might reasonably be held as to the nature of the stockbrokers duty towards his client is that clients are different and before a client can be advised reasonable efforts must be made to get to know a client. There is a binding obligation under the rules of the Irish Stock Exchange 1997 which were in force on 25th August. 2005. Counsel are agreed that these rules govern the relationship up to November 2007. The relevant rule in that regard is encapsulated in rule 4.5.3:
Before a member firm enters into a relationship with a private client, other than an execution only client, it must take reasonable steps to obtain information in writing from that client, details of his:
(a) personal financial situation,
(b) investment objectives,
(c) attitude to risk,
(d) investment experience,
(e) investment restrictions, and
(f) any other facts about his position which the member firm reasonably believes it needs to know, or which it ought reasonably be expected to attempt to find out.
The firm may in capturing a client’s investment objectives and attitude to risk provide the client with a number of standard investment objectives in its client documentation. For each investment objective and risk option listed, the firm shall ensure that it provides sufficient guidance to enable the client to make an informed decision.
35. It was key to the relationship of stockbroker and client that the client paid for these services. The basis on which the client paid was that appropriate investigation should be carried out and the service tailored accordingly. Investors can be different. The fees of Davy were paid for discharging duties particular to the specific client. In this respect Davy failed to meet that standard. Counsel for Davy has rightly accepted that this was the standard that applied. Other duties arise as well which apart from this duty are not essential to the decision in the case. Insofar as Davy have pleaded that risk warnings were given, and that that was in compliance with section 4.2.4 of the same rules, this is not accepted. The additional requirements set out in section 4.2.2 in relation to advisory clients were not, on the evidence in this case, fulfilled. In addition, it is not probable that section 4.1.1 was complied with. There was a duty of care but even if the duty of care is cast on the basis of a contractual duty of deliberate neglect, such neglect was the situation here. When the regulations were changed in November 2007, this led to no discernable change in the practice of Davy as regards this client. Actually, there has been much concentration in this case on the European Communities (Markets in Financial Instruments) (Amendment) Regulations (No. 2) 2007 (S.I. No. 773 of 2007) but on analysis of the terms, these continued but added nothing to what the obligations were already that are essential to this decision. Some specific terms were referenced, some not pleaded, and this is not appropriate to the orderly disposal of a case.
36. The duty of Davy to James Haughey duty existed concurrently in contract and in tort. James Haughey was paying for advice. He had contracted for fees to receive advice based on an appropriate analysis of who he was and what his objectives were. As was stated by Lord Goff in Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145 at 193-4:
[T]he common law is not antipathetic to concurrent liability and [..] there is no sound basis for a rule which automatically restricts the claimant to either a tortious or a contractual remedy. The result may be untidy; but given that the tortious duty is imposed by the general law, and the contractual duty is attributable to the will of the parties, I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him, subject only to ascertaining whether the tortious duty is so inconsistent with the applicable contract that, in accordance with ordinary principle, the parties may be taken to have agreed that the tortious remedy is to be limited or excluded
Expert opinion
37. Two expert witnesses gave opposing evidence on the key question of the discharge of the duty of care. Both were genuine experts and the court has benefited greatly from the debate between them. Paul Keenan for Davy sought to justify the pen picture as being sufficient in the context of the “know your client” exercise. Paul Keenan in his professional life has otherwise sought to generally warn financial service providers of the necessity to ensure compliance at a higher level than that of traders. This is an important thing to do from the point of view of the public. In this, he is completely correct. Writing about what may be described generally as a lack of management scrutiny he said:
Internal audit has a role to play, but their role is always behind the times, runs to a known schedule, and trusts the systems that the traders are able to manipulate. It requires expensive forensic training and major changes to be effective. Compliance officers, these days, are usually on the trading floor and have daily contact with traders, they understand SYSC, and so, if given the tools and the access, will understand how to monitor for SYSC compliance. Compliance monitoring already has a strong presence in banks, and is easily extended to incorporate SYSC.
38. Paul Keenan is involved in serious and important work and is entitled to the respect of everyone in that regard. He said the above quote referenced another service. At the very least, the quote declares a reasonable statement of principle which the Court accepts. The Court cannot accept, however, that a pen picture that was never sent to James Haughey for his approval can be regarded as equivalent to a client profile. This was part of the service being paid for. Nor can it be accepted that any aspect of the plaintiff James Haughey talking in court about contracts for difference could be described as “quite impressive”. That is not so. It cannot be reasonably said that an execution only account might have been suitable for James Haughey to trade in contracts for difference because he would have been under the “watchful eye” of Anthony Moyles. Nor can it be accepted that even an average person could over the course of an hour read through the documents presented on 25th August, 2005 and see the warnings even more swiftly. That is unrealistic and as a matter of fact in this case cannot be accepted as probable. These, and other considerations, lead to Court to the conclusion that, while there is much benefit from debating the contrary view, the expert evidence proffered on behalf of the plaintiff James Haughey by Joe Motley is strongly to be preferred.
39. His view was that even if the plaintiff was demanding greater risk, there was a duty under the Irish Stock Exchange Rules to take all reasonable steps to ensure that the advice from Davy did not encourage unsuitable activity. His view was that Davy was under a responsibility to advise James Haughey away from extensively risky positions at a much earlier stage. Further, if Davy believed that there was a persistent pattern of James Haughey choosing to undertake trades which did not meet their suitability criteria, it was open to them, and they should have, requested him to change the status of his account to an execution only account. In that case the stockbroker under the relevant rules would not be providing any advice in relation to the client transactions and would not be obliged to verify their suitability for the client. This was a series of transactions which, at their height, exposed James Haughey to risks in excess of €30 million. This was against a background where his ostensible value in the initial pen picture was perhaps €5 million and where that included, it would seem, his residence, something which should not be taken into account. No one should be in a position to invest, he said, unless they mean to take the risk of loss in value of 50%. The language in the warnings was dense and was not easily taken up. Once the account was changed from Cantor FitzGerald to IG Markets as provider in June, 2006 the level of risk was ramped up. The Court would find it important to note the total failure to conduct a further face to face meeting beyond a brief chat and yet more empty document signing. That level of risk, according to Joe Motley, was too high and it was too concentrated, essentially on two or three companies and exclusively on one kind of investment. That exclusivity was not appropriate. To accept an answer in the June, 2006 from James Haughey in relation to the level of commitment of assets as being “no limit” was nonsensical, he said. The client has to be looked at in terms of what the client is, according to Joe Motley, and if someone has an inheritance then that person may not be shrewd, not a person who has earned their money and worked their way into a level of wealth. Furthermore, if someone has an inheritance and is merely a student, that person cannot be expected to turn to the employment market readily. That is right. Building a career takes years. If someone is to depend on an inheritance, then the money must be structured through their broker so as to have a reasonable chance of lasting over decades. If a broker feels a client is taking too much risk, the right thing to do is to change to execution only and this should have been done in respect of the disputed transactions from May, 2007. This evidence of Joe Motley is accepted. It is objective, it is clear, he did not shy away from answering difficult questions and he was of real assistance.
40. Another aspect of Joe Motley’s statement of evidence is accepted, though this is not essential to the decision in the case. This reads:
I was unable to find any evidence in the documentation of Davy having given its terms of business to the plaintiff before any dealing commenced (as required under rule 4.2.1 of the rules of the Irish Stock Exchange) and there is no record of any disclosure anywhere else of what commission rates, financing rates and other charges would be applied to his account.
41. The Court would also note that the rate of return in terms of the interest charged on the full amount of taking a position on shares as between the stockbroker and the provider was kept out of evidence. As to how and in what circumstances a stockbroker is entitled to a bonus and on what basis it is calculated was fogged in the evidence so that no meaningful information came across. As to what a “silver” client or a “gold” client may be was deliberately obfuscated in the evidence. References to the number of brochures that might be sent to a particular kind of metal-designated client as opposed to another, gold being approximately 100 times more expensive as bullion than silver, was explained in a silly way. None of this is important. And none of this is taken into account in making any decision in this case. It regrettably, however, does show a lack of trust for the independent and completely transparent public forum of justice that the High Court represents.
42. Whether there are experts or not, it is the responsibility of the Court to form a view The Court is charged with that responsibility and unlike either expert has a complete view of live evidence and relevant documentation.
Borrowing
43. There has been some dispute between the parties, in addition, over borrowing by James Haughey to fund these contracts for difference. This is not essential to this decision. In terms of fact, it seems that a Bank of Ireland loan was taken out on the equity of some of his property on 21st April, 2006 for €1.64 million. The loan cheque issued on 31st May, 2006 and went to a solicitor with whom James is friendly on 4th July of that year. Then, €650,000 was lodged to the CFD account of James Haughey. On 14th March, 2007, a Bank of Ireland loan was raised on the equity of property in the sum of €1.2 million. The cheque was made payable to James Haughey on 11th June, 2007 and €1.1 million was put into the CFD account. So, €2.84 million was raised by James Haughey out of his inheritance in property and, of this, about €1.75 million was put into his CFD account. Money was put into that account and money was taken out of that account to buy property, to pay capital gains tax and for other reasons. This movement in money is supposed to be significant, according to the argument advanced by Davy. That is not accepted. In reality, €1.09 million went elsewhere from these loans. Having carefully considered the contradictory evidence, the Court accepts that Davy encouraged these loans. That huge amount of finance was raised against property that was the inheritance of James Haughey from his late parents. This was not an appropriate way to deal with this client and Davy would not have dealt with this client in this way had a proper “know your client” exercise been conducted from the outset in August, 2005, or in June, 2006, or in June, 2007 or at any time up to the disastrous losses which manifested in January, 2008.
Summary
44. The Court is bound as a matter of law to accept, and further accepts as a matter of expert opinion, that the correct way to have dealt with James Haughey would have been for Davy, firstly, to get to know him properly. In that context, secondly, if there was a manifest desire coupled with appropriate knowledge to engage in some form of trading in contracts for difference, someone with his background and vulnerability in terms of not having a job and only having inherited wealth should strongly have been advised in writing against any trading in contracts for differences. The correct approach, thirdly, for any investment for this particular client with his particular needs and his special disabilities would be to structure a share portfolio that was spread over time and over investments that would minimise risk; thus providing a reasonable prospect of a steady but conservative return. Had Joe Motley been receiving fees from this client that is indeed what would have happened. It did not happen. That failure represents negligence and manifest breach of contract through deliberate neglect over the relevant period of the relationship.
45. In summary, Davy manifested an insufficient level of care throughout the entirety of the relationship with James Haughey. Davy failed to provide the service paid for throughout the entirety of the relationship. This was equivalent to, or amounted to, deliberate neglect. This particular client should never have been allowed at any stage of this relationship to engage in contracts for difference either at all or at the level involved. Nor did James Haughey know what he was doing to the degree that he ought to have known prior to being introduced to and while being allowed to speculate with these products. The Court is satisfied that the concept and the ramifications of contracts for difference were never properly explained to James Haughey by Davy. The Court is further satisfied that he remained genuinely mystified in giving evidence as to the full implications and ramifications of these instruments.
Limitation of action
46. There was a complete failure to get to know James Haughey for what he was. There was a complete failure in that fundamental obligation under the rules of the Irish Stock Exchange. That obligation is not one which arises at one point in time only and is then completed; it is a continuing obligation. In this case, at no stage was that obligation met. While it may be met by a thorough introduction and analysis that maintains a profile over years or decades, failure to engage in that analysis means that there is an unfulfilled obligation throughout the entire of the relationship. That is why this case has nothing to do with the Statute of Limitations.
Civil Liability Act
47. Another point pleaded by Davy was that section 17 of the Civil Liability Act 1961 did not entitled James Haughey to recover damages. That section reads:
(1) The release of, or accord with, one concurrent wrongdoer shall discharge the others if such release or accord indicates an intention that the others are to be discharged.
(2) If no such intention is indicated by such release or accord, the other wrongdoers shall not be discharged but the injured person shall be identified with the person with whom the release or accord is made in any action against the other wrongdoers in accordance with paragraph (h) of subsection (1) of section 35; and in any such action the claim against the other wrongdoers shall be reduced in the amount of the consideration paid for the release or accord, or in any amount by which the release or accord provides that the total claim shall be reduced, or to the extent that the wrongdoer with whom the release or accord was made would have been liable to contribute if the plaintiff’s total claim had been paid by the other wrongdoers, whichever of these three amount is the greatest.
(3) For the purpose of this Part, the taking of money out of court that has been paid in by a defendant shall be deemed to be in accord and satisfaction with him.
There are a number of problems with the argument advanced by Davy. It is certainly the case that the statement of claim, in common with almost every pleading before the High Court contains many claims that were not pursued. One of these was conspiracy and another was negligence alleged against both defendants. The first day of this case was taken up with waiting for the parties to negotiate. No court takes an interest in that and will deliberately remove from the process. The result was that the case against Bank of Ireland was discontinued and judgment for that bank in excess of €3 million was entered as against the plaintiff. That was in respect of loans and the usual interest, apparently. The Court in no way enquired into that and was not asked to. There were vague references to the pleadings. But where is the concurrency of liability to James Haughey? How in those circumstances can it be said that the Bank of Ireland was a concurrent wrongdoer with Davy since no liability was ever established against that bank and, on the contrary, a substantial judgement was entered by the supposedly concurrent wrongdoer against the plaintiff? This is supposed to be because the bank and Davy are pleaded as being in a conspiracy, in other words an agreement to commit an unlawful act, as against the plaintiff. Where is the evidence for that conspiracy? How can the court possibly come to the conclusion that an unrepresented party, who has left court because the case involving that party has been settled, is a wrongdoer? Furthermore, where is the “consideration paid for the release or accord”? The section is an entirely sensible means of ensuring that compensation on the double is not paid where the case is settled as against one wrongdoer but the defendant is either kept in the dark or is deprived of the benefit of the appropriate measure of damage. As a matter of contract, that measure is the damage which flows naturally from the breach. This is to be judged according to the nature of the contract and what could have been contemplated by the parties as a consequence of a breach. In tort, the measure of damages requires compensation to put the plaintiff back into the position where the wrong is substituted by an appropriate monetary award: thus, in theory, as if the wrong had never been committed. But, where is the wrongdoer that accord has been achieved with? Is it supposed to be Bank of Ireland? If so, the terms of the settlement contradict any such assertion. On the contrary, the plaintiff paid money. In law no one pays money to a wrongdoer. What is missing from this argument is a demonstration of what wrong has been committed by Bank of Ireland and what compensation has been paid by that bank to the plaintiff so that it can be said that the injured person is to be identified with the bank because of the release or accord.
Knowledge of losses and warnings
48. The Court accepts that James Haughey is likely to accept warnings and to act on them. The Court accepts his often repeated statement in evidence that having hired an expert he is likely to have followed that expert’s advice. Whether or not the nature of his personality is such as to make him vulnerable to the advice of those he looks up to, a common enough human failing in any event, is not part of the matrix of fact that makes up the decision in this case. The Court is not at all content to rely on written accounts of advice given to James Haughey by Davy. The failure to properly record the crucial aspects of the relationship from the start, and all the way through this relationship to consider its elements, indicate that the records of Davy are unreliable. Even were the records of advice given to be reliable, the nature of what the plaintiff was in terms of what he was and what his needs were should have been, and was not ever, taken into account in giving that advice.
49. The disastrous positions on Ryanair shares were initiated and partially entered into while James Haughey was being treated as an inpatient in the psychiatric unit of Galway University Hospital. The Court considers that it is highly probable that conversations took place at that time between James Haughey and Anthony Moyles as to where he was, how he was doing, what exams he had passed or failed or had had deferred or as to any major event in his life, including the loss of his close friend. It is less than probable that Anthony Moyles advised against taking up any position in Ryanair. The evidence has been carefully listened to and the stark contradiction between advice recorded in a telephone conversation of 24th April, 2008 and a statement in evidence that airline shares in general were somehow generally to be distrusted because of the risk of a crash is noted. Ryanair is regulated by the Irish Aviation Authority in its operations and this opinion is, in consequence, surprising. It is likely that positions in Ryanair were taken and were maintained in consequence of advice to James Haughey from Davy. In that regard, the Court notes that while some of the positions were being built Anthony Moyles was training in sport abroad. In terms of the probability as to what happened, however, on the state of the evidence, May, 2007 was a time to cut completely any relationship by Davy with James Haughey and contracts for difference. To fail to have done that, in the context in which it occurred, was a failure to respond to the developing nature of the relationship which has to be based on knowledge by a stockbroker of his client.
50. On 25th July, 2006 a note appears on the file:
Both myself (Daniel Molloy) and [Anthony Moyles] advised client [James Haughey] that it would be very risky to go short on Greencore shares at this point in time. We highlighted the risk […] Our advice was that he should not short the stock at this point in time. Client proceeded regardless, requested to go short on 2,000,000 shares at €4.20.
51. In fact, the position was not taken up by James Haughey and the Court can be satisfied that Davy were capable of giving advice and the James Haughey was capable of acting on it.
52. Then on 31st July, 2007 a note was dictated by Anthony Moyles to John Clohisey, who was then his assistant. There is a problem in relation to phone calls in this regard since John Clohisey’s phone call was not recorded until a later time on that day. Part of the suspicion raised in this case as to phone calls was that many took place outside the internal records of Davy on mobile devices owned by the brokers. That is probable. The note reads:
We reviewed the CFD portfolio with James on 31st July, 2007. We explained the recent volatility in the markets and pointed out that there could be further downside from here in the short term. He is happy with the current positions and will send in more money if required.
53. John Clohisey gave evidence. There was a strong sense in his testimony as to how far he would go. His evidence is taken into account in so far as it is probable and in so far as portions of it may be accepted. Such portions do not help the defendant’s case.
54. On Wednesday 1st August, 2007 another note was dictated by Anthony Moyles to John Clohisey:
We spoke with James on 1st August 2007. We discussed the idea of putting a short position in place to hedge his current long positions in the market. We warned him about his large exposure to Ryanair and Inditex and the risks surrounding this in the current market. James advised that we will consider putting the short in place and that he would revert if he wishes to hedge his portfolios.
55. The problem with this advice is that short positions were soon after put in place and that Inditex was eventually sold. The short positions were on stable shares that were not likely to balance the wild fluctuations that eventually came to characterise the Ryanair position. These short positions did not at all solve the serious problem and yet they were advised by Davy as part of the solution.
56. On Wednesday 29th August, 2007 there is another file note at a time when John Clohisey was on holidays:
I spoke to James on 29th August 2007. I explained the situation to him that we coming into a very turbulent time in the markets over the next 6-12 months. I explained to him that if the market lost on average 20% he would have a margin call of close to [€]5 million based on his current holdings in Inditex and Ryanair. He said that he understood and would bear it in mind. He did not want to reduce any of his holdings at present.
57. Shortly thereafter, the Ryanair position was reduced somewhat, by about a third. Inditex was sold leaving only Ryanair, but including short positions on a range of other shares bundled. The last trade in Inditex seems to have been 21st September. 2007. The short positions, which were commenced in August, 2006, continued until 27th December. 2007 and at one point, on 30th October, 2007, these short positions reached €5.844 million. Earlier shorts are not relevant to any outcome. In the context of all that has occurred in this case as regards note keeping and record checking, these Davy notes cannot be relied on as a probable account of the advice given to James Haughey. Furthermore, an alarmingly self-serving note was penned to the file that was dictated by Anthony Moyles to John Clohisey as of Saturday, 27th October, 2007. The circumstances described in court of dictating this note are improbable. The note reads:
We call James on a daily basis to review all holding in James’s CFD account. James has a good understanding of the financial markets. He has his own ideas on companies. He regularly researches specific companies and reads the financial press. He understands leverage and has used this tool in his own property transactions. Anthony has explained how leverage works with CFD instruments and the risks involved. James has been supplied will all the relevant documents on CFD and his happy with the risks involved. James relies on Davy for investment ideas, but also makes his own calls with regard to buying certain stocks and with regard to selling out of positions. James confirmed that he was happy with the recent sale of Inditex (September 2007) and Independent News and Media (April 2007). James confirmed he was happy to hold all stocks currently in the portfolio including long positions in: Ryanair and short positions on the FTSE 100, EADS.
58. This note does not record the nature of the relationship as it appears to be probable to this Court. Davy as a firm was aware that James Haughey had difficulties. The responsibility of Davy in that regard was to terminate any involvement by James Haughey in contracts for difference. That relationship should never have been entered into in the first instance. It should have been reviewed properly. Several opportunities arose for appropriate review during the course of this relationship by Davy. The episode of strain was one obvious one. The positions could have been terminated on the changeover from Cantor FitzGerald to IG Markets but this did not happen in June, 2006. When the levels of stress that were apparent to Davy resulted in James Haughey ending up in hospital, whether he said psychiatric or not to anyone in Davy, the relationship should have been again reviewed in May, 2007. Instead, this disastrous series of events continued. In so far as it is alleged that any warnings were given, the Court could only be in a position to accept that of 25th July, 2006 as probable. That is because of the source of the note is not shown to be inaccurate. Any other notes are likely to be garbled and any testimony with regard to these warnings came across as unlikely. Any advice given to counter the long positions in Ryanair with short positions on a range of shares was insufficient advice. But it was advice that, on the documentation, was probably taken by James Haughey. Clear and unambiguous advice to move out of contracts for difference would have been given by any competent and careful firm of stockbrokers on the review date of June, 2006 and what should have been a review date of May, 2007. In what Davy choose for him, James Haughey was totally and completely at sea and out of his depth. A review by the documents section was absent as a check and higher management did not conduct any necessary review even in signing off their client as suitable for contracts for difference speculation.
59. One of the aspects of the law of negligence is predictability. No reasonable stockbroker would have allowed James Haughey into this kind of trading because no reasonable stockbroker could reasonably have predicted a good outcome over time for him as a client. In terms of time, a reasonable stockbroker would have looked at where James Haughey was at financially and in terms of employment and in terms of source of income and in terms of whether assets needed to be fostered as opposed to speculated and would have asked how long the money he had was to last. All such questions on the evidence in this case would have indicated the same result. Even had warnings been given, they did not override the situation into which Davy had put James Haughey both as a matter of fact and as a matter of law.
Information
60. It has been proven that statements from IG Markets were emailed to an email address for James Haughey at University College Galway. Davy had two different email addresses for James Haughey, both very similar. This lack of attention to detail is not impressive. In the end, it is likely that emails went regularly directly from IG Markets to James Haughey at his university email address. The Court does not accept that he understood these or how to read these properly. James Haughey has no recollection of the emails in question. That evidence came across as reliable. The data manager from the university was called. All emails have by now been deleted. IG Markets have indicated that no emails were replied to. It is hard to conclude what happened. One possibility is that the emails were treated as spam and were accepted but put into a spam folder in his inbox where they were left unread in consequence of university protocols. This is unclear. It seems less likely that they bounced back as this would leave a trace, in other words IG Markets would know of it through their technology branch. Another possibility is blocking because of the size of the attachment but there is no information as to the university protocols at the time. Another possibility is that James Haughey ignored everything and relied on Davy to keep him informed. What is clear is that he did not fill out the form for access to IG Markets computer information on a specialised website. This has been mentioned earlier in the context of forms. He says that he complained to Davy that he needed paper information and he asserts a suspicion that Davy stopped such records because of a dishonest act. The Court accepts that nothing done by Davy as a firm was dishonest in their dealings with James Haughey. There was negligence and that amounts to deliberate neglect. That is all. The Court accepts that a request for paper information was made, perhaps not made too assertively, and that the IG Markets records were an insufficient substitute. James Haughey seemed to have been genuinely puzzled when the IG Markets email attachments were drawn to his attention. It is probable that the emails did not reach him. Even if these did get to him, more than that was required for him as a client to show how the accounts were working out. As he complained, one position may be clear but the overall result was what needed to be shown. Again, this finding is personal to this plaintiff. But again, the “know your client” exercise requires reasonable levels of scrutiny as to what each client needs. The Court is not satisfied that the case made by Davy as to the appropriate delivery of email and any other written documentation is made out as a probability.
Damages
61. Both John Harding and Andrew Brown are exceptionally able accounting experts. They met and agreed a joint report. On one issue they are divided and that is the result of awarding damages. The logic inherent in the evidence of John Harding makes his viewpoint preferable though the debate with Andrew Brown was of considerable benefit in the clarification of the issues.
62. The Court has a fundamental view. This trading in contracts for difference would never have taken place if the stockbroking firm had gotten to know James Haughey. It would have been stopped, and replaced by conservative trading of the Joe Motley variety, had such knowledge been acted upon by Davy. The approach of the Court on damages is to removing those trades and to putting the plaintiff back in the position he would have been in had no trades taken place. The Court does not accept that losses would probably have been made in alternative investments. The Court considers it probable that investment in a range of good stocks through cash ownership would place a foundation of wealth diversification on a firm footing. It is not likely that the money would have been lost or diminished or thrown away. Nothing as to the alternatives as produced by Davy would convince the Court that anything other than maintenance of funds with some small growth would have been achieved had there been sensible advice of the kind that would have emanated from Joe Motley.
63. On the key issue of the carry forward of capital gains: the Court considers that the precipitation of James Haughey into these products was wrong and that maintaining him in that sector of speculation was wrong on every day that it occurred. The measure of damages is as to removing that wrong and returning the plaintiff to a situation as if these regrettable excursions into leveraged products had never occurred. Commenting on his interactions with Andrew Brown, and reasoning through his position, John Harding said as follows:
We agreed that the capital gains tax paid was heading that needs to be taken into account, primarily because notwithstanding that losses were occurred in the 2008 CGT losses, or losses for capital gains tax purposes, these losses cannot be set back against the capital gains tax paid into thousand and seven and in earlier years. In other words, once you paid tax on previous gains that taxes settled and can’t be offset. So, in terms of assessing the amount of money that would be required to put the plaintiff into the position that he would have been in had there been no CFD trading, the objective is to say: “look, if there had been no CFD trading he wouldn’t have made the profits in earlier years which we have taken into account and netted off in arriving at the €1.5 million but neither would he have had to pay the capital gains tax, the irrecoverable capital gains tax that was paid on these”, so that becomes a valid heading of claim… Arising from the CGT legislation as it’s currently structured, the losses that were incurred in January 2008 cannot be set backwards but can be carried forward in terms of an ongoing situation. In that situation the carried forward CGT losses would be available to use against any future capital gains that the plaintiff might make… Where there is disagreement is that in the context of this case, in the context of the plaintiff receiving compensation in this case in the amounts claimed… I see that at a superficial level it looks like we have €3.7 million of losses to carry forward and that we are receiving compensation, or would, in that situation, receive compensation of €2 million. So in such a situation, at face value, it looks like there would be residual losses that the plaintiff could carry forward and that might be available to him subject to the legislation not changing and subject to him earning profits at some point in the future and that is the position. I believe… that cannot sustain examination. I believe that in the context of the settlement of this case, for example, in the context of an award of damages of the €2 million that that award of damages fully compensates the plaintiff for the €3.7 million of losses that were incurred in 2008.… or allowing a credit for the after-tax income that he earned in previous years, implicit in these net figures. So when you decide the figure, you discover that he is receiving in for the losses that were realised in 2008 and he’s handing back the after-tax profits that he made and in such a situation the capital gains tax losses will not be available to him if he’s awarded damages in the amounts claimed.
64. The Court fully accepts the logic of this position. It is also improbable that gains will be made by the plaintiff. It was argued that since receivers were appointed by Bank of Ireland over his properties that gains will probably be made on the sale of these and that losses carried forward must be available as a matter of law to write off against these profits. There is no evidence that these profits will be forthcoming, apart from speculation based vaguely on the prices of properties, again in a state of flux in Ireland. Nor is there any information as to when a receiver might be likely to sell properties. Even were such information to be forthcoming, the logic of the position as explained by John Harding is regarded as compelling.
65. The Court accepts the John Harding figures. Consequently, the net losses incurred on the relevant figures, for the CFD trading accounts was €1,250,475, to which must be added the non-recoverable capital gains tax and this amounts to €487,066, to which must be added the interest cost of funds invested in CFD trading up to 31st October, 2013 at €350,960, and finally the interest cost of funds invested from November, 2013 to the end of February, 2014 at €11,120. Total recoverable damages are therefore €2,099,621.
Result
66. There will be a decree for the plaintiff in the sum of €2,099,621.
Ryan v Danske Bank A/S t/a Danske Bank [2014] IEHC 236JUDGMENT of Ms. Justice Baker delivered the 29th day of April, 2014
1. The plaintiff is the owner of two commercial unregistered premises known as Franciscan Hall situated at 1 Henry Street and 2 Sarsfield Street, Limerick, and registered lands comprised in Folio 47241F County Kerry with an address at 31 Gortamullen, Kenmare Holiday Village, Kenmare, Co. Kerry. The first defendant bank (“the Bank”) has the benefit of a mortgage over the premises at Franciscan Hall created on the 27th January 2003, and a first charge over the folio lands registered on the 12th November, 2003. The Bank also has the benefit of a mortgage or charge over the plaintiff’s principal private residence at the Cottage Lemonfield, Crecorca, Co. Limerick where he resides with his wife Susan Halvey.
2. The Bank by deed of appointment made on the 28th November 2013, appointed the second defendant receiver of the registered lands, and by separate deed of 20th January 2014, receiver of the unregistered premises.
3. In these proceedings the plaintiff seeks declaratory and injunctive relief and pleads that the appointments of the second defendant as receiver over each of the commercial properties are void and of no effect. The matter comes before me on a motion for an interlocutory injunction restraining the second defendant from taking any steps as receiver of either premises, and for an order restraining the first defendant from carrying out any steps pursuant to various loan agreements. An undertaking has been given by the defendants pending the determination of the injunction application.
Facts
4. The plaintiff is 45 years of age and he and his wife are employed as full time lecturers. He is the sole legal owner of the relevant lands and premises. It was stated in argument that he is 20 years from retirement and the matters which gave rise to the financial difficulty in which he has temporarily found himself are matters he can resolve over time in the course of his working life. His loans with the Bank, in the case of the loans secured on the commercial properties, were performing until August 2013, and until October 2013 in the case of the loans secured on his principal private residence.
5. The plaintiff has from time to time suffered from severe anxiety and a depressive illness and he asserts that the Bank was fully aware of this. It is not seriously disputed that the Bank had some knowledge of the plaintiffs depressive condition, although the exact extent of this and that it rendered the plaintiff incapable of dealing with some of his financial affairs at some of the times relevant to these proceedings, is in doubt. The plaintiff asserts on affidavit that the defendant knew from 2010 that he suffered from an illness and that he had at that time suffered a particularly tragic family event in that he and his wife lost their young son.
6. It is not doubted that the plaintiff had loan accounts with the Bank, that the monies advanced by the Bank were secured, that the loans were in arrears, nor that the Bank had a contractual entitlement to appoint a receiver. No technical objection is made to the manner by which the Bank appointed the receiver by deed, nor to the nature and legal effect of the security documents themselves.
7. The plaintiff, however, asserts that there is imported into his contractual relationship with the Bank an obligation on the part of the Bank to behave towards him in a fair and equitable way. In particular, it is argued that this obligation is imported from the Consumer Protection Code, the relevant one being the 2012 Code (“the Code”), and in particular clauses 2 and 8 thereof which, it is argued, import an obligation on the part of the Bank to allow him an opportunity to deal with his acknowledged arrears. He says that during the period when he fell into arrears and without his knowledge or prior notice to him, a receiver was appointed over the Kenmare property, and that a receiver was appointed over the Limerick property at a time when he was attempting to deal with the arrears. He says that the appointments are unlawful in the circumstances.
8. Mr. Ryan says that he has been attempting to engage with the Bank since 18th December, 2013, but that the Bank’s sole or overriding concern is to wind up his loans as it is exiting the Irish market, and that it is not acting bona fide in that it has “engineered a default” on his loans for the sole purpose of calling in the loans and “exploiting the securities”. He says he has offered to repay most or all of the arrears and to sell the Limerick premises by a self managed sale, and that the Bank owes him a duty at common law and under the Code to fully engage with his proposals.
The sequence of events leading to the appointments
9. The Bank sent letters of demand on 11th October 2013, and 8th November 2013, in respect of the Kenmare loans, and on 25th November 2013, in respect of the Limerick loans, during a time when the plaintiff was ill and unable to deal with his post. There was a gap in communication during the acute stage of his illness between 11th September, 2013, and 6th January, 2014, a gap of almost four months. The main point of the plaintiff’s arguments is that the Bank failed to properly and fully engage with him and especially with his proposal to discharge the arrears on his accounts in the sum of €40,000. The plaintiff argues that under the Code, and by implication at common law, the Bank must not merely consider any proposals he makes to deal with the arrears but must consider these in a positive manner and that the appeal procedure available within the Bank once the credit committee rejected his proposals did not afford him natural justice as the appeal was proposed to be heard by an official of the Bank and not an independent third party. He says that in his discussions with the Bank after 14th January, 2014, the Bank was less than forthright and he says that some discussions were held after the receivers were appointed when he was unaware of these appointments.
The claim made in the proceedings
10. The plaintiff challenges the appointment of the receivers on the grounds that there was (a) an implied term of good faith (b) an implied term from the Code that the Bank would give him an opportunity to deal with the arrears before a receiver was appointed and (c) that the Bank appointed a receiver other than for the purpose of recovering its debt. The plaintiff argues that the implied terms are to be implied at common law, under the Irish Constitution and the European Convention of Human Rights Act 2003, and that there is also imported into his contractual relationship with the Bank equitable principles of fairness which require the Bank to engage in a meaningful way with his attempts to deal with the arrears. The plaintiff also makes the argument that his constitutional rights and those under the European Convention on Human Rights Act 2003 have been breached by the fact that he was not given an opportunity to make representations i.e. that he was denied an opportunity to be heard. He says that there is imported into the relationship an obligation on the part of the Bank akin to an obligation of natural justice, and in this regard there is an averment at paras. 49 and 51 of his affidavit of 6th March, 2014, suggesting that the Bank did not give him a right to be heard in accordance with natural justice.
Is the plaintiff a consumer?
11. The plaintiff argues that he comes within the broad definition of consumer in the Consumer Credit Code 2012 and that he is a “personal customer” as therein defined. He does not carry on the business of property investment or development and his purchases were for his personal financial and tax purposes. He relies on the judgment of Barrett J. in Ulster Bank v. Healy 2014 IEHC 96 where the Judge held that the defendant was a consumer for the purpose of the Consumer Credit Act 1995, as inserted by the Central Bank and Financial Services Authority of Ireland Act 2004, and that he was “acting outside his business, trade and profession” as he had engaged in “personal investments … so as to meet the retirement or other future requirements of himself or his family”. I accept the test as explained by Barrett J. and note also that I must, at interlocutory stage, take the plaintiffs argument at its height. Accordingly, I am of the view he has made out an arguable case and having regard to the case law that he is a personal consumer and entitled to the protection of the Code.
The legal effect of the Consumer Protection Code 2012
12. The plaintiff argues that the Code in particular clauses 2.1 and 2.8 and clauses 8.2 and 8.3 import a duty on the Bank to act honestly and fairly in dealing with him as a personal customer and in the handling of arrears. He says that this Court having regard to the fact that he has an arguable case that he is a consumer may imply certain terms into his contractual relationship with the Bank and into the security documents.
13. The Code was made by the Central Bank pursuant to the statutory regulatory power contained inter alia in s. 117 of the Central Bank Act 1989. Section 117 (1) requires the provisions of any such code to be observed by a holder of a bank licence. Failure to comply with a direction given to a licence holder to comply with the provisions of a code constitutes an offence liable to be tried summarily or on indictment. The Central Bank is also given the power to administer administrative sanction for contravention of a provision of one of its codes.
14. The statutory regime makes no reference to the impact, if any, a breach of one of the codes might have on the contractual rights of a bank and its customers or on court proceedings for enforcement of those rights. For that reason the legal status of the codes issues by the Central Bank under its statutory regulatory powers has been the subject of what Hogan J. described in Irish Life and Permanent v Duff & Anor 2013 IEHC 43 as “cross-currents of judicial opinion”. The question was characterised by Breslin at a para 4.102 in the 3rd edition of his Banking Law in Ireland as whether the provisions of a code are “soft law” devoid of legal effect, and not sounding in a civil claim for damages. Hogan J. in Irish life and Permanent plc (t/a Permanent TSB) v Financial Services Ombudsman and Thomas 2012 IEHC 367 said that the codes are “not entirely a species of soft law, i.e. purely precatory statements not susceptible of legal enforcement” and that the codes “can certainly inform … the thinking of regulatory authorities in assessing appropriate standards for credit institutions”, but that proposition does not in any sense answer the question of whether the codes might import rights or obligations between banks and their customers in private law. Gilligan J. in Freeman v Bank of Scotland (Ireland) Ltd and others 2013 IEHC 371 suggested that the status of the codes is “not absolutely clear and may be dependent on the circumstances of each particular case.”
15. Birmingham J. in Zurich v. McConnon 2011 IEHC 75 found as a matter of fact that Mr. McConnon was not a consumer but did raise the question of how a breach of the relevant code might affect contractual obligations and said the following obiter:
“Entirely lacking is any suggestion that a breach of the Code renders the contract null and void or otherwise exempts a borrower from the liability to repay.”
16. In Stepstone Bank v. Fitzell 2012 IEHC 142 Laffoy J. refused to make an order for possession of the defendants’ primary residence because the relevant code was not complied with by the plaintiff bank. This was an application under s. 62(7) of the Registration of Title Act 1964 which expressly imports a discretion into the court power to grant possession. That sub section provides as follows:
“When repayment of the principal money secured by the instrument of charge has become due, the registered owner of the charge or his personal representative may apply to the court in a summary manner for possession of the land or any part of the land, and on the application the court may, if it so thinks proper, order possession of the land or the said part thereof to be delivered to the applicant, and the applicant, upon obtaining possession of the land or the said part thereof, shall be deemed to be a mortgagee in possession.
Laffoy J. said the following:
“I find it impossible to agree with the proposition that, in proceedings for possession of a primary residence by way of enforcement of a mortgage or charge to which the Current Code applies … the plaintiff does not have to demonstrate to the Court compliance with the current Code… surely a court which is being asked to make an order which will, in all probability, result in a person being evicted from his or her home, is entitled to know that the requirement in provision 47, which has been imposed pursuant to statutory authority, is complied with. ” .
17. Hogan J. in Irish Life and Permanent Plc v. Duff [2013] IEHC 43 also considered the question of the effect of Central Bank codes on contractual obligations and rights. He too refused to grant an order for possession of a primary residence because the bank did not comply, or at least comply fully, with the requirements of the code prior to instituting proceedings for possession. Hogan J expressly said he was refusing to make the order for possession in the exercise of his discretion which he accepted arose from the authorities in the case of unregistered lands, notwithstanding that pre-2009 mortgages of freehold unregistered lands were made by assurance of the legal title. A court order for possession is required for all post December 2009 mortgages by s. 97 of the Land and Conveyancing Law Reform Act 2009.
18. Ryan J. in ACC Bank Plc v. Deacon & Anor [2013] IEHC 427 suggested that the decisions of Laffoy J. and Hogan J. in refusing relief arose from reasons specific to “claims for repossession of family homes”. He said that failure to comply with the relevant code for dealing with small and medium enterprises did not “wipe out the loan or furnish a defence”.
Does breach of the 2012 Code give the plaintiff a cause of action?
19. It is possible to reconcile the recent case law by virtue of the fact that the two “currents” evolved in different classes of remedy: In the possession cases the court was exercising either an established statutory discretion or one established by precedent in previous cases; in the debt cases the court was enforcing legal rights under contract where no discretion arose. The court in all these cases was considering the proposition that breach of a Central Bank code might give rise to a defence or raise a matter going to the discretion of the court to make or refuse relief, but was doing so in entirely different judicial contexts and exercising different classes of powers, one where equitable principles of discretion came into play and another where the remedies and rights lay at common law. I discuss later the interplay of these elements.
20. The cases most on point are the judgment of Hogan J. in Life and Permanent Plc v. Duff and that of Laffoy J. in Stepstone Bank v. Fitzell where the court accepted that the defendant was a consumer or personal borrower. Those matters had come before the court on an application for possession, in the case of Irish Life and Permanent Plc v. Duff of unregistered lands, and in the case of Stepstone Bank v. Fitzell of registered lands. The court has a discretion at common law, and now under the Act of 2009 expressly by statute, to grant or refuse possession, and to fix any terms that it considers just, albeit a discretion which is exercised in the light of established jurisprudence. The judgement of Laffoy J. in Stepstone Bank v. Fitzell, correctly in my view, held that the court in its discretion could and must ensure that the plaintiff bank had complied with its obligations, as failure of compliance would have had the indirect effect of rendering the enforcement by the Central Bank of the obligations “nugatory”. Similarly in Life and Permanent Plc v. Duff Hogan J. expressly refused to make an order for possession in the exercise of his discretion. In the other cases mentioned above, in which the role of Central Bank codes were considered, the courts were not applying discretionary powers or principles but were called upon to make judgments on contractual rights, and in each case the court held that breach of the relevant code had no effect on the entitlement to relief.
21. The Central Bank codes of conduct, in the light of these authorities, may inform a court exercising its discretionary powers, and a court acting judicially and with due regard to the interest of the mortgagor and mortgagee in ordering possession, or modulating the effect of the order for possession, will take account of the regulatory requirements imposed by the relevant code. The power of the court to make an order for possession expressly imports an element of discretion, and ipso facto fairness to both sides, in the decision to make an order and the fixing of the terms and conditions of such an order. It seems to me not to matter that the premises are a principal private residence, and the central fact is that the power of the court is a discretionary one. An element of discretion does not however become, without more, a ground on which a plaintiff may mount a claim for relief whether in the form of injunctive relief, declaratory relief or damages. The discretion is that of the court, not one that as counsel for the plaintiff has sought to argue, one that is imported into the contractual nexus, or one which itself can found a cause of action.
Conclusion on the Code
22. In my view the codes issued by the Central Bank cannot be said to have the effect that the obligations created on licensed banks are justiciable by borrowers. The requirements of compliance are ones to which the court will have regard in the exercise of its discretionary power, inter alia, in making orders for possessions of secured premises. Non compliance with a relevant code may at best offer a defence to a borrower in an individual case, although the extent to which this may be so must be seen in light of the judgment of Birmingham J. in Zurich v. McConnell where the Judge pointed to the obvious fact that breach of a code is not expressed to make a loan null and void. Breach of a provision of a code does not in my view offer a borrower a substantive basis on which relief may be sought. It may sound in equity or in defence but it does not offer a justiciable cause of action to a plaintiff at common law.
An implied term?
23. In the alternative the plaintiff seeks to enforce the rights which he alleges arise by implication in the contract between himself and the Bank, and which the plaintiff says are imported at common law, under the Constitution, the European Convention on Human Rights and in equity.
24. At paras. 75 – 77 of his grounding affidavit sworn on 6th March, 2014, the plaintiff asserts that certain obligations and corresponding rights exist as necessary indices of the relationship between himself and the Bank. Briefly, these may be summarised as follows:-
(a) That the Bank owes him a duty to act honestly, fairly and professionally towards him, and with all due skill and diligence and in his best interest.
(b) That the Bank has a duty to act in good faith towards him.
(c) That the Bank has a duty to ensure that he was properly consulted in relation to the loans.
(d) That the Bank owed him a duty to inform him of its intention to call in the loans and to seek to rely on the security for those loans.
(e) That he has a right to be heard in relation to the loans and the security, to put his case to the Bank, and a right to a proper and fair appeal of any decision made by the Banlc
(f) That the Bank did not appoint a receiver for proper purpose and/or in good faith.
(g) That the actions of the Bank are unlawful and made in breach of his rights at common law and arising as outlined above.
A fiduciary or special relationship?
25. There is nothing in the documentation before me, nor has it been argued by counsel for the plaintiff, that the Bank owes a fiduciary duty to the plaintiff as borrower or in the provision by the plaintiff of security for his loans. I accept as a correct statement of the law that contained in the judgment of Hogan J. in Irish Life and Permanent Plc v Financial Services Ombudsman and Thomas [2012] IEHC 367, at para. 46, that “save in the special case of where the mortgagee enters into possession of mortgaged property, it is clear that the mortgagor/mortgagee relationship is not a fiduciary one”. There is no suggestion in this case that the plaintiff relied on any advice from the Bank in obtaining the loans and putting in place the security, and no fiduciary and other special relationship existed between bank and customer that might have given rise to what Hogan J. in that case described as “super added duties of utmost good faith and complete disclosure”. The contract between the plaintiff and the Bank was a contract made in the course of normal banking customer relations and there is nothing in that relationship that might import additional duties beyond those normally found in such relationship; no special relationship exists.
Implied term at common law?
26. The plaintiff seeks that this Court would import into the contractual relationship between himself and the Bank obligations and rights and in particular I note the assertion that is contained at para. 71 of the grounding affidavit that the Bank was obliged to act in the best interest of the borrower. It cannot be doubted that the Bank had an obligation to act fairly and professionally and indeed honestly towards the plaintiff, but the Bank’s primary right in regard to its security interest is expressly described in the security documentation itself, namely a right on the giving of demand to enforce the security by the appointment of a receiver. The plaintiff seeks that this Court would import into the express contractual provisions in clause 6(2) of the mortgage and charge documents, an obligation to ensure that he was “properly consulted” both in relation to the loans and the intention to appoint a receiver, and that he had a right to be heard in relation to the loans, to put his case to the Bank and that the Bank was obliged to fully engage with him.
27. I am mindful of the strong statement in the judgment of Finlay Geoghegan J. in Irish Bank Resolution Corporation (In Special Liquidation) v. Morrissey [2013] IEHC 208, where at para. 101, she expressly identified the limit of the court’s jurisdiction as follows:-
“Prior to determining the issues set down by Order of Kelly J, it is important to emphasise the limits of the Court’s jurisdiction. This is a Court of law. Its obligation is to determine the rights and obligations of the parties in accordance with law. ‘Law ‘ in this context includes the relevant constitutional, statutory and common law, in particular, the law of contract and the applicable equitable principles, particularly in relation to the defence of estoppel. On the evidence, particularly of Mr. Morrissey, there appears, regrettably, to have been a significant gap between his commercial expectation in his dealings with the Bank and the contractual written terms to which he agreed. In his own evidence, he described ‘a space between understanding and agreement’. Unless the former is such that in accordance with applicable legal or equitable principles it is enforceable, it is not cognisable by the Court and the Court must determine and enforce the rights and obligations of the parties in accordance with law. ”
28. In that case, Finlay Geoghegan J. rejected the contention that the relationship between the bank and Mr. Morrissey was a fiduciary relationship and in particular took the view that there was no advice sought from or advice proffered by the bank, or any other steps undertaken which took the relationship outside of the normal commercial relationship of a lending bank and borrower by an experienced entrepreneur or business person. While Mr. Morrissey was an experienced borrower, and while I have held for the purposes of the application before me that Mr. Ryan, the plaintiff in this case, was a personal borrower, there is nothing in the relationship between personal borrower and bank which imported anything other than a common law duty imported into all contracts of honesty and basic good faith.
29. It seems to me what the plaintiff asks this Court to do is to take a preliminary view that there exists in the relationship between himself and the Bank an obligation on the part of the Bank to act towards him with a degree of reasonableness or fairness, which is more commonly found in public law. I adopt the rejection of such an imposition of public law principles into private contracts contained in para. 102 of the judgment of Finlay Geoghegan J. in Irish Bank Resolution Corporation (In Special Liquidation) v. Morrissey, where she said as follows:-
“…this is not a dispute which involves a review by the Court as to how the Bank took the decision not to extend Mr. Morrissey’s facilities and issue the demand or the reasonableness or fairness of same as the Court might do in a judicial review of a public body to which public law principles apply. No such claim is made or could be made in respect of the decisions taken by the Bank in 2009/2010. Certain of the submissions made on behalf of Mr. Morrissey appear directed to public law principles which do not apply. ”
Accordingly, I cannot accept that the obligations contented for may properly be said to arise as a matter of contract. The terms contended for may be more fairly characterised as “super added duties”, to borrow a phrase of Hogan J. in Irish Life and Permanent Plc v Financial Services Ombudsman and Thomas and I do not accept that they may be implied into the contractual nexus between the plaintiff and the Bank in the absence of a special relationship.
Good faith?
30. I am satisfied however that the law will import into the relationship of mortgagee and borrower a duty to act in good faith. It is well established in law that a bank can sit and chose not to enforce its security but once it does take enforcement steps it must act fairly. These principles arise from the nature of the relationship as one of security and can have the consequence that the decisions and actions taken by a mortgagee may result in disadvantage to the borrower. The terms that are implied are terms that the mortgagee not act capriciously or in a way that unfairly prejudices the borrower, and would satisfy any common law test of the “officious bystander”, and would be terms that each party to the contract would readily accept as arising from the nature of the relationship and good sense. The terms that are implied do not go so far as to import duties of utmost good faith as might arise in a fiduciary relationship and I am not satisfied that the terms sought to be implied by the plaintiff in this case can be implied at common law.
A duty of care?
31. The plaintiff also argues that the Bank owed him a duty of care not to appoint a receiver or seek to enforce its security without giving him an opportunity to be heard and to deal with the arrears. Hoffman J. in Shamji & Ors v. Johnson Matthey Bankers Limited & Ors [1986] BCLC 278, described the issue as follows:-
“The appointment of a receiver seems to me to involve an inherent conflict of interest. The purpose of the power to enable the mortgagee to take the management of the company’s property out of the hands of the directors and entrust it to a person of the mortgagee ‘s choice. That power is granted to the mortgagee by the security documents in completely unqualified terms. It seems to me that a decision by the mortgagee to exercise the power cannot be challenged except perhaps on grounds of bad faith. There is no room for the implication of a term that the mortgagee shall be under a duty to the mortgagor to ‘consider all relevant matters’ before exercising the power. If no such qualification can be read into the security documents, I do not think that a wider duty can exist in tort … I might add that Harman J. once remarked that the analogous power of the mortgagee to enter into possession may be exercised ‘before the ink is dry on the mortgage’. Certainly there has never been any suggestion that the right to exercise the power, as opposed to the way in which the mortgagee deals with mortgage property once he is in possession, is qualified by a duty of care to the mortgagor. ”
I adopt this analysis and am not persuaded that the plaintiff can show that a duty of care arises in the choice by the Bank to appoint a receiver. Certain duties may arise in the receiver or the Bank, as the case may be, if a sale is effected but these duties are not the subject of this application.
The role of equity
32. The plaintiff argues that certain terms will be implied in equity into the contractual relationship with the Bank. I note the compelling analysis by Hogan J. of the so called ‘fusion” of law and equity in his recent judgment in Meagher v. Dublin City Council [2013] IEHC 474, at para. 27 thereof where he states as follows:-
“The very fact that such a distinction remains embedded in the legal system should perhaps give us pause to reflect before any far-reaching claims regarding substantive fusion can properly be accepted. It might also be borne in mind that many equitable principles were originally fashioned to impose particular duties on persons such as trustees and fiduciaries to ensure that they exercised their powers in a manner consistent with the overriding principle of utmost good faith, even if over time these equitable principles were applied more generally and more widely in order to temper the rigour of the common law. Yet these higher duties had been imposed by the Courts of Chancery by reason (in part, at least) of the special obligations which trustees or fiduciaries owe to third parties by virtue of their special relationship with such persons. It would not, however, be necessarily appropriate to impose these higher standards in the ordinary sphere of the law of contract and tort where these underlying principles will generally have little or no application, even though this would (or, at least, might) be a natural consequence of the substantive fusion of law and equity.”
I adopt that statement as a correct analysis, for the purpose of this case, of the relationship between law and equity since the passing of the Judicature Act 1877. The rights that arise between that plaintiff and the Bank are contractual rights in which equity has no role. The Bank has an express contractual right to appoint a receiver and no equitable principles come into play.
The purpose of appointment of the receiver
33. It is argued by the plaintiff that the receiver was not appointed for the sole purpose of obtaining payment and he relies on the statement in Breslin’s Banking Law in Ireland (3rd Ed.) 2013 at para. 15.04, where reference is made to the express statutory provision to that effect contained in s. 96 of the Land and Conveyancing Law Reform Act 2009. The statutory provision limits the power to appoint a receiver such that it does not, under that Act, become exercisable unless it is for the purpose of protecting the mortgaged property or realizing the mortgagee’s security. This section applies to mortgages created after the coming into operation of the Act of 2009 and the relevant statutory powers in the case of both the mortgage and registered charge are contained in s. 19 of the Conveyancing and Law of Property Act 1881 as expressly varied by clause 6(2) of each security document so as not to include the restrictions contained in s. 20 of that Act. The power to appoint a receiver in each case became exercisable upon the making of demand by the mortgagee for payment and there was an express power to appoint a receiver “at any time thereafter”. There is no statutory or contractual limitation such that the power to appoint a receiver may be exercised only for the purpose of realising the security but I accept that as matter of first principle the nature of the security contractual relationship will import at common law such a restriction.
34. The plaintiff says that the Bank is exiting the Irish market and that this is so has not been seriously disputed. The suggestion is that the Bank is engaged in bad faith in appointing a receiver and that this is not for the purpose of realising its security. I have heard no cogent evidence that the Bank has appointed the receiver of these properties for reasons other than the acknowledged arrears in the plaintiff’s loans. The Bank did engage with the plaintiff since July 2013. A six week gap arose between July 2013 and 11th September, 2013 and then a gap of nearly four months between 11th September, 2013 and 6th January, 2014, the fault for which must lie at the plaintiff’s feet, although it is conceded that the plaintiff was ill during the time. I can find no evidence before me of bad faith and the loans had fallen into arrears such that the express statutory power became exercisable.
The European Convention on Human Rights Act 2003
35. The plaintiff also asserts that certain rights are imported into his contractual arrangement with the Bank by the European Convention on Human Rights Act 2003. It has been established in the Irish Courts that the ECHR does not have direct effect in Irish law and the Supreme Court affirmed this in McD. v. L. [2009] IESC 71 where Murray C.J. made it clear that the Convention itself was not directly applicable in Irish law and that consequently no claim could be made before the court in Ireland for a breach of any provision of the Convention. Accordingly, and on the clear authority of the courts on the effect of the Convention, I hold that the plaintiff has not made out an arguable prima facie case that he has rights under the Convention which are capable of being protected and ought now to be preserved by way of interlocutory injunctive relief.
36. No argument was made before the court that certain rights in the form of additional duties are owed to the plaintiff by the Bank under the Irish Constitution and even were such argument to have been made, it seems to me it would fail having regard to the fact that no specific constitutional provision has been invoked by the plaintiff in asserting such a claim.
Summary
37. In summary the Bank and the plaintiff entered into formal security documentation which entitled the Bank as a matter of contract to appoint a receiver on the happening of certain expressly identified events. Certain restrictions will be implied as a matter of common law in the exercise by the Bank of this right, but these are no more than the obligation on the part of the Bank to act fairly and honestly. The Bank was entitled to appoint a receiver following the making of a demand and it has not been asserted that proper demand was not made. I reject the assertion that there can be imported into the contractual relationship between the parties an obligation on the part of the Bank to act reasonably, to consult, or still less to fully consult, with the customer, or to act in the interest of the borrower. A duty of care may well arise should the receiver or the Bank sell either or both of the secured properties, but such a duty has not arisen in these circumstances to date. What the plaintiff asserts is that he had a right to be heard, that the offer made by him to discharge the arrears ought to have been positively considered by the Bank, that the Bank failed to afford him natural justice in its process. These are rights and obligations which I cannot accept as a matter of law are arguably terms that may be implied into the security contract and the mortgage deeds.
The test for granting an interlocutory injunction
38. It has long been accepted that the test whether the court should grant an interlocutory injunction is whether a plaintiff can show a bona fide issue to be tried, and it is equally clear that the threshold is relatively low. That law is well established, and I do not need to rehearse it here. What is equally clear, however, is that a plaintiff must at least establish that he has an arguable cause of action and an injunction may be called in aid of either a common law or equitable right as the case may be.
39. The plaintiff asserts that he has raised an issue to be tried and the court cannot enter upon the exercise of assessing the strength of the plaintiff’s case or the strength of the defence. He says that he suffers the risk of loosing his family home and that is the type of loss that cannot be compensated by damages. He says that on the balance of convenience, the Bank will suffer little, and indeed, that the Bank cannot show any prejudice. In that regard, I note that the Bank has not asserted that the value of the properties is declining nor has the Bank suggested that a sale has been negotiated and was likely to be lost. He says the real risk must lie with the plaintiff because of the relationship between the loans taken together and the family home and also because of the fact that he will loose his property.
40. Having regard to the continued distinction between equitable and legal rights, and the justifiable reluctance of the courts to import into contractual relationships principles which might more properly be described as equitable principles, I find it impossible to accept the argument advanced by counsel for the plaintiff that the contractual relationship between the plaintiff and the Bank did and must be understood to have contained such rights and principles on which this action is grounded. In the circumstances, I find that the plaintiff has not made out a bona fide or arguable case that there can be imported into the relationship between the plaintiff and the Bank, the high standards which he seeks to import, namely standards which require the Bank to act in his interest, to properly consult him and reasonably engage with him in the management of the arrears and the enforcement of the securities.
41. Accordingly, I hold that the plaintiff has not made out an arguable case on the pleadings and evidence now before this Court.
The position of the plaintiff’s principal private residence
42. The Bank has not appointed a receiver over the principal private residence of the plaintiff and his wife at the Cottage Lemonfield, Crecorca, Co. Limerick. If the Bank is to sell the family home, it must seek a court order for possession in default of agreement and in the circumstances, the plaintiff would be entitled to the benefit of the MARPS code. The arguments made here may well come to figure in any court application and this decision does not preclude any arguments at any such hearing. I note the argument that the loans are so interconnected that without the income from the Limerick premises, the loan on the primary residence will fall into further arrears. I cannot accept that as a matter of law that a financial interconnection between the loans means that the security for the commercial loans must be dealt with in the same way as that for the principal private residence nor that this interconnection gives the plaintiff a cause of action in regard to the commercial premises.
43. Accordingly. I refuse to make the injunctions sought.
Spencer v Irish Bank Resolution Corporation Ltd [2016] IECA 346
THE COURT OF APPEAL
Neutral Citation Number: [206] IECA 346
Ryan P.
Peart J.
Hogan J.
Record No. 2015 404
BETWEEN/
JOHN SPENCER
PLAINTIFF/
APPELLANT
AND
IRISH BANK RESOLUTION CORPORATION LIMITED (IN SPECIAL LIQUIDATION)
FIRST NAMED DEFENDANT/
RESPONDENT
AND (BY ORDER)
STAPLEFORD FINANCE LIMITED
SECOND NAMED DEFENDANT/
RESPONDENT
JUDGMENT of Mr. Justice Gerard Hogan delivered the 23rd day of November 2016
Introduction
1. This is an appeal brought by the plaintiff and appellant, John Spencer (“the plaintiff”), against the decision of the High Court (Costello J.) where his claim for damages for negligent misstatement and misrepresentation in respect in respect of oral and written statements which he alleged were made to him by the first named defendant (“the Bank”) was dismissed: see Spencer v. Irish Bank Resolution Corporation [2015] IEHC 395.
2. The background to these proceedings is complex, but it is admirably summarised by Costello J. in the comprehensive judgment which she delivered on 15th June 2015. In many instances in this judgment, I have adopted or adapted the helpful summary of the relevant facts and general narrative set out in the judgment of the trial judge. While I reach a different conclusion from Costello J. in respect of some key aspects of both her reasoning and the ultimate result, her summary of the facts and the issues and her presentation of the applicable legal questions has been of considerable assistance in the preparation of the judgment.
The background facts
3. The essence of the plaintiff’s case is that his contention that as a result of certain representations made by the Bank he invested €1m. personally in a life assurance bond offered by Anglo Irish Assurance Company Limited (“AIAC”) and he borrowed a further €1 m. from the Bank for the purpose of advancing that sum to a partnership, the Cashel Rock Partnership, so that the Partnership could purchase a life assurance bond from AIAC. In relation to the Partnership, the plaintiff initially claimed that he was an assignee of the interests of the Partnership and was entitled to sue in respect of the losses allegedly caused to the Partnership arising out of the investment in the bond. At the end of the case in the High Court it was accepted that the evidence did not establish an assignment of the Partnership interest and this claim was not maintained. Both of these bonds now have a nil value. It is, however, unnecessary for me now to examine the Castle Rock Partnership issue at all.
4. The plaintiff also advanced a distinct claim for negligent misrepresentation as against the Bank in connection with the representations which he alleges caused him to enter into a loan agreement with the Bank. The plaintiff also sought a declaration that discharges him from his obligations arising under the current loan agreement. He also sues for damages for breach of warranty, breach of duty and breach of fiduciary duty.
5. The second named defendant, Stapleford Finance Ltd. (“Stapleford”) was joined by order of the High Court. It purchased the loan, the subject of the proceedings, from the Bank pursuant to s. 12(2) of the Irish Bank Resolution Corporation Act 2013. The second named defendant has counterclaimed seeking judgment against the plaintiff pursuant to the loan agreement. The plaintiff replies that he is entitled to set-off his claim in damages against the Bank in relation to the loan against the entire claim due and owing pursuant to the loan agreement. The plaintiff accepts that if his claim to a set-off fails that the second named defendant will then be entitled to judgment against him in respect of the loan.
6. The appellant did not appeal against certain aspects of the judgment of the High Court, a matter to which I will later refer as appropriate. Both the Bank and Stapleford lodged notices to vary in respect of the findings of misrepresentation made by the trial judge. I will also address this matter in due course.
The Whitgift Shopping Centre
7. The dispute itself concerns the purchase of certain property interests in Croydon, a southern suburb of London in 2005. In the 1960s the Whitgift Shopping Centre (“the Whitgift Centre”) was constructed in central Croydon on lands owned by the Whitgift Foundation. It was refurbished in 1985 and 1998. By 2005 the Centre was a large retail/office centre. Part of the Centre comprised ageing offices and a car park which was leased to the British Home Office on a lease which was due to expire in December 2010.
8. The freehold title to the Centre vested in the Whitgift Foundation. The Whitgift Foundation was founded in 1596 and is comprised of two charities; it owns much of the freehold of central Croydon for, inter alia, educational trusts. There was a long reversionary lease held by the Royal London Mutual Insurance Society (“the Royal London”) and a long sub-lease held by Whitgift Shopping Centre Partnership and property partners. In essence, therefore, the Whitgift Foundation and the Royal London each owned 25% of the interest in the Centre and the then managing company, the Whitgift Shopping Centre Partnership and property partners, owned the remaining 50%. This long leasehold interest was offered for sale in 2005 and is the subject of these proceedings.
9. Under the terms of the reversionary head lease, no development could be carried out without the consent of the Whitgift Foundation. In addition, even if the Foundation as landlord authorised developments to the Centre, the Whitgift Foundation and the Royal London would each have to agree to contribute to the costs of any proposed development on a pro rata basis. They were under no obligation to contribute to the costs of any development in excess of 5% of the rental income of the Centre.
The purchase of the long leasehold interest in the Whitgift Centre
10. Howard Holdings plc (“Howard Holdings”) was an Irish and UK based property development, advisory and management company. It had over 50 staff and was itself based in Croydon. It had significant experience in the Irish, UK, European and South African property markets and at that time had approximately stg£1.5 billion of property under development. The Bank had established a successful working relationship with Howard Holdings during the development and management of two successful property developments in Cork.
11. On 29th March 2005, Howard Holdings made a presentation to the Bank in relation to the Whitgift Centre. The presentation provided a description of the “[s]ignificant opportunities for asset enhancement”. The Bank was interested in joining with Howard Holdings in forming a joint venture to purchase and develop the asset.
12. The structure of the proposed purchase and investment was complex. The leasehold interest was to be acquired by AIAC, a subsidiary of the Bank, and was to be vested in a Jersey unit property trust (“the JUPT”). A fund known as the Whitgift Geared Property Fund was established by AIAC to acquire 77.3% of the units in the JUPT. The balance of the units were to be purchased by representatives of Howard Holdings (“the JV Partners”). The investors in the Whitgift Geared Property Fund would each purchase a life insurance bond from AIAC for the Fund. The value of each bond or policy was linked to the value of the underlying asset, being the long leasehold interest representing 50% of the interest in the Whitgift Centre.
13. The purchase price for the 50% stake in the Whitgift Centre was stg£225 million plus costs of stg£7 million. The source of funding was a debt facility of stg£166m. provided by the Bank and investor equity of stg£66 million. Of this equity, stg£15m. was to come from the JV Partners and stg£51m. was to be raised from the Bank’s client base of high net worth individuals. Pending the raising of the equity, the Bank was to provide AIAC and Howard Holdings with bridging facilities in relation to stg£66m. which would be repaid upon receipt of investor equity.
14. The Bank was to be involved in this project in a number of ways. As provider of finance for the purchase of the leasehold interest it required approval from its Credit Committee for the proposed facility; as it was proposing to market and sell the Insurance Bonds in the Whitgift Geared Property Fund to its clients it required Product Committee approval for the investment product. These parallel approvals were pursued within the Bank between May 2005 and June 2005. While there were issues which were never resolved in evidence in relation to each of these approvals, the Bank proceeded on the basis that it had Credit Committee and Product Committee approval. This was never questioned by the Bank.
15. It was essential that a thorough due diligence investigation be carried out as part of the process of deciding whether or not AIAC should purchase the leasehold interest (and whether the Bank should provide finance and invite its clients to invest in the Whitgift Geared Property Fund). For this purpose the Bank instructed Davies Arnold Cooper solicitors to prepare a report dealing with the title and planning history of the Whitgift Centre. They furnished a report in July 2005. The Bank also instructed DTZ Debenham Tie Leung (“DTZ”) to prepare a valuation report; this report was furnished on 22nd August 2005. In addition, the Bank had the benefit of a property report prepared by EC Harris LLP for the previous owners of the leasehold interest in the Whitgift Centre. The Bank instructed McCann Fitzgerald and Matheson Ormsby Prentice solicitors and KPMG Accountants to advise in respect of the legal and tax matters relevant to the proposed investment.
16. On 31st May 2005, Howard Holdings hosted an investment presentation in Croydon to a number of client relationship managers from the Bank during which they had the opportunity to visit the Whitgift Centre. On 20th June 2005, representatives of Howard Holdings and two representatives from the Bank met with representatives of the Whitgift Foundation in relation to the proposed acquisition of the 50% interest in the Whitgift Centre by Howard Holdings and AIAC. Another purpose of the 20th June 2005 was to assess the position of the Whitgift Foundation in relation to proposed developments of the Centre. As the meeting of the 20th June 2005 is of considerable importance to many of the issues arising in this appeal, the details of these meetings will be considered later in this judgment.
17. Once the Bank had completed the due diligence process to its satisfaction on 29th September 2005, AIAC entered into a contract to purchase the leasehold interest and the Bank advanced the finance (both bridging and long-term). The Bank and AIAC were now formally in a position to offer bonds in the Whitgift Geared Property Fund to their clients.
Planning in relation to the Whitgift Centre
18. The planning history in relation to the Whitgift Centre and an adjoining development was complex and still evolving throughout 2005. Prior to the acquisition of the Whitgift Centre by AIAC in 2005 the previous owners of the long leasehold interest had made two planning applications to develop the Centre. The first application, known as Bishops’ Court 1, was refused on 4th April, 2003. A revised application in respect of the Whitgift Centre, known as Bishops’ Court 2 was submitted. This also was refused but was appealed in 2005 to the Secretary of State. The appeal was rejected on 5th October 2005.
19. The owners also applied to develop the site of an existing car park between office blocks B and C on the Wellesley Road side of the Whitgift Centre to provide a new medium sized retail unit comprising of some 80,000 square feet. This application was referred to as the Phase IV development. It was on the site of the car park that was leased to the British Home Office together with various offices. That lease was due to expire in December 2010 so that the owners did not have an immediate right to vacant possession of this plot of land. (This is a detail which also assumes some considerable importance so far as the resolution of this appeal is concerned and to which I will later refer.) On 22nd December 2004, planning permission was granted in respect of the Phase IV development, but this could not immediately be acted upon without the cooperation of the Secretary of State and, specifically, without the surrender of the existing lease.
The plaintiff’s investment in the Whitgift Geared Property Fund
20. The plaintiff is a solicitor who in 2005 had been in practice on his own account in Nenagh for some 20 years. He had developed a substantial property portfolio of more than 15 properties both in Ireland and in England. He found managing a large number of individual properties was time consuming and wished to change to a less “hands on” form of property investment.
21. In the spring of 2005 he became aware of an opportunity to invest in a geared property fund offered by Quinlan Private in an asset in Knightsbridge in London (“the Knightsbridge Investment”). On 2nd and 3rd June 2005, the plaintiff wrote to Ms. Margot Deacy of the Private Client Division of the Bank asking for a loan to enable him to part-finance his proposed investment in the Knightsbridge Investment. On 16th June 2005, the Bank issued the plaintiff with the letter of offer to enable him to complete this investment. The Knightsbridge Investment was in sterling and the plaintiff wanted to fix the euro cost of the sterling he would require for the investment. The plaintiff agreed a rate and a purchase price for the relevant amount in sterling at that time.
22. Ms. Deacy was aware that the Whitgift Geared Property Fund would shortly be available to market to clients of the Bank. While she arranged for the loan to the plaintiff, she also urged that the plaintiff should consider the Whitgift option before finally committing himself to the Knightsbridge Investment.
23. On 22nd June 2005, Ms. Deacy met the plaintiff at his office in Nenagh and discussed a number of matters. They discussed an investment property owned by the plaintiff and three other partners in Nenagh; a property that they owned in Croydon (entirely unrelated to the Whitgift Centre); and the possibility of acquiring a new premises for another solicitor’s practice in either Killaloe/Ballina. There was, in addition, a general discussion in relation to his pension provision. He indicated that he was interested in gearing up his pension with a view to purchasing a property. He was interested in family partnership and he requested a follow-up meeting on estate planning. At that meeting Ms. Deacy offered the plaintiff the opportunity to invest in the Whitgift Geared Property Fund.
24. Following the meeting of 22nd June, 2005, Ms. Deacy sent the plaintiff a loose-leaf brochure (“the first loose leaf brochure”) in relation to the Whitgift Centre, together with a compliments slip. This was received by the plaintiff on 23rd June 2005. In summary, this brochure identified five asset management opportunities which had a total potential rent increases of stg£2.5m.. It identified five possible development opportunities offering a total potential development profit of stg£30m.. The return on equity was:-
“projected at 150% over 10 years on conservative rent assumptions and NO development profits assumed. Based on Howard’s Master Plan for the centre, our client ROEs could be as high as 250% (development profits included).”
25. The plaintiff was interested in involving a friend who resided in Australia in a property investment. On 27th June 2005, he faxed a friend, Ms. Catharine Scott, a handwritten note urging her to invest with him in the Whitgift Geared Property Fund together with a copy of the first loose-leaf brochure. (Although Ms. Scott has been based in Australia since 1979, she is originally from Ireland). While the issues in relation to Ms. Scott’s involvement in the project featured in the judgment of Costello J., no issue was taken before this Court in relation to those issues and I accordingly propose to leave those issues to one side.
26. The next day the plaintiff emailed Ms. Deacy in relation to his pension mortgage in the following terms:-
“Dear Margot,
…The [pension] fund is due to receive €175,000 per annum for at least the next 7 – 8 years and I am aiming for a growth rate in it of 12% – 15% year on year…
If it is possible to proceed on this basis I am interested in relying on the Anglo investment in Woodgift (sic), Croydon as recently discussed.”
27. In late June 2005 the plaintiff was now considering both the Knightsbridge Investment and the Whitgift Investment as alternative opportunities. He continued to write to Quinlan Private in relation to the Knightsbridge Investment up to 30th June, 2005.
Decision to invest
28. On 15th July 2005, the plaintiff sent an email to the Bank confirming that he would not be proceeding with the Knightsbridge Investment and cancelling the pre-ordered sterling. He stated:-
“Instead I propose to enter an investment vehicle formulated by Anglo Irish Bank which is due to come on stream in terms of its offer to the public in about 3 weeks.”
29. Ms. Deacy sent him a second compliments slip which is stamp dated 15th July, 2005. There was considerable controversy as to what was enclosed with the compliments slip, but Costello J. ultimately found that it was the second version of the loose-leaf brochure which had been enclosed by Ms. Deasy.
30. The plaintiff’s case is that as a result of receiving the second version of the loose-leaf brochure on 15th July 2005, and he decided to invest in the Whitgift Investment. He therefore abandoned the Knightsbridge Investment and he wrote on 15th July 2005 to cancel the pre ordered sterling he had required for that investment.
31. Having decided to invest in the Whitgift Geared Property Fund the plaintiff took the necessary steps to enable him to invest in the Fund. The plaintiff proceeded to realise a number of his assets in order that he could fund his own investment.
32. The plaintiff had two meetings with representatives from the Bank during September 2005. On 9th September 2005, he met with Ms. Deacy and Mr. Tynan and on 29th September 2005, he met Ms. Deacy. Mr. Tynan was involved in order to deal with the complications imposed by the involvement of Ms. Scott in the investment. Ms. Deacy stated that the plaintiff “really liked both the asset management and the development play associated with the Whitgift Fund”.
33. By letter dated 5th October 2005, the plaintiff confirmed that he would be investing €1m. in the Whitgift Geared Property Fund in his own name and the Cashel Rock partnership would also invest €1m. For the reasons which I have already mentioned, it is now unnecessary to consider the position in relation the Cashel Rock partnership any further.
34. On some date between the 12th and the 19th October 2005, the plaintiff met representatives of the Bank, a Mr. David Hayes and Ms. Deacy, at the Radisson Blu Hotel in Galway. Mr. Hayes made a presentation to the plaintiff in respect of the proposed investment in the Fund. Mr. Hayes certainly had a brochure at the meeting. One of the contested issues was whether or not Mr. Hayes was in possession of the second loose-leaf brochure or whether it was the formal funds brochure colloquially referred to as “the Black Book”. In a letter dated 19th October 2005, the plaintiff expressly acknowledged that he had an opportunity to read “the investment information”. In her judgment Costello J. found that that this was a reference to the Black Book as opposed to the second loose-leaf brochure. This is an issue of fact to which I will later return in this judgment.
35. On 19th October 2005, the plaintiff completed a number of documents in the presence of the Bank’s officials. The first was a personal financial review with Ms. Deacy. The plaintiff indicated that he was prepared to invest 100% of his wealth in a high risk investment. Ms. Deacy recommended investment in the Whitgift Geared Fund and the plaintiff acknowledged that the recommendation was based upon the information he had disclosed and that he agreed with the recommendation. This document was signed by Ms. Deacy as sales intermediary and by the plaintiff on 19th October 2005.
36. Also on 19th October, 2005, the plaintiff and Ms. Deacy signed a letter of that date from the Bank to the plaintiff dealing with his investment objectives referred to as the ‘Reasons Why’ letter. The letter refers to a meeting had over the past few weeks and under the heading “Investment Objectives” stated as follows:-
“You indicated that you had several investment objectives. I have outlined these below:
• Diversification -you wish to develop and expand the types of investments you hold – in your case you would like to have exposure to the UK and other property markets as you have sufficient property holdings in Ireland.
• Growth – you wish to get an improved return on your assets by investing in geared property investment options. You are aware that leveraged investments have additional risks; however [they] also have additional potential investment returns.
• Security – you wish to invest in a well-managed investment however Capital Guarantees are not required and you could get less back than you invested.
• Income – we have advised you that this investment does not provide a regular income and you have sufficient resources to cover your income requirements for the next 7-10 years”.
37. The letter recorded the following information that had been provided in relation to his investment experience background and financial standing:-
“• You are aware of property investments and have significant exposure to property investments in your own right
• You have experience of geared property investments and you are aware of the additional risk due to the borrowing
• You have invested in other types of investments including unitised funds, pensions, shares and life investments.
• Your current financial standing allows you to invest in the proposed investment for the term and you are aware of the potential risks to both capital and returns.
• You have had an opportunity to read the investment information and you are satisfied that it meets your investment requirements.” (emphasis added)
38. The letter specifically recorded that in deciding how to invest his money and with a view to potentially higher returns he was prepared to take significant risk with capital. The letter stated that the Whitgift Geared Property Syndicate was a high-risk investment. The letter defined high-risk as where the capital was not guaranteed and could be subject to a high degree of volatility. It was acknowledged that he had an appetite for high-risk. The letter stated:-
“• Recommendation
• Based on the information discussed at our meeting and set out above, I recommend the following investment option as suitable to your circumstances:
The Whitgift Geared Property Syndicate. The amount to be invested will be €1,000,000 in the name of John Spencer.”
39. The plaintiff signed the letter and his signature was witnessed by Ms. Deacy.
40. By letter of loan offer dated 13th October 2005, the Bank offered to advance the plaintiff the sum of €1m. to part fund his investment in the AIAC Whitgift Geared Property Fund. Security for the loan was to be the assignment of his interest in the Fund. At the meeting with Ms. Deacy on 19th October 2005, the plaintiff accepted the letter of offer. He expressly waived his right to a 10 day period to consider the commitment to the agreement and he also waived any right which he may have to withdraw from the agreement under s. 30 or s. 50 of the Consumer Credit Act 1995. He confirmed by his signature that he had read the conditions of the letter and the general conditions in the credit agreement and acknowledged that they formed part of the agreement. His acceptance of the facility letter was witnessed by Ms. Deacy on 19th October 2005.
41. The plaintiff also applied on the same day to AIAC for an investment bond in the Whitgift Geared Property Fund. As this was a life assurance bond, the Life Assurance (Provision of Information) Regulations 2001 applied. Ms. Deacy signed the bond as the plaintiff’s financial advisor. It is expressly noted that it was recommended that independent financial advice be taken when purchasing financial products. Both Ms. Deacy and the plaintiff executed the application for the investment bond on 19th October, 2005.
The Policy Documents
42. By letter dated 5th December, 2005, the Bank issued a receipt to the plaintiff in respect of bond number INB/0003006 in the Fund. The letter enclosed documents relevant to the Fund and the investment including: the policy documents, the Fund’s brochure (“the Black Book”) and disclosure documentation.
43. The Black Book set out the nine asset management opportunities and development opportunities that were set out in the loose-leaf brochure, including a statement that the Bank was satisfied from its meetings with the Foundation that the latter body was “in favour of Howard [Holdings’] plans for the Centre, but clearly can give no guarantee with regard to consents.” By contrast, however, with the earlier loose-leaf brochures, it did not seek to monetise the expected return. On the contrary, on p. 20 it stated that it was difficult to quantify the return potential from the opportunities. At p. 33 it set out the risk factors as follows:-
“A geared property investment is considered to be high-risk and the following considers the types of risk associated with an investment of this kind. This brochure does not constitute investment advice, and prospective investors should consult their own legal, financial or tax advisors in relation to the participation in this investment…
This brochure includes information obtained from external sources, and this information has been reproduced accurately from those sources, but Anglo and AIAC do not accept any responsibility for the accuracy or completeness of such information…
Investors should note that a fall in the capital value of the property of approximately 26% would reduce the value of investor equity to zero assuming no surplus rental income and no reduction in Bank borrowings…
Development Risk
The intention to develop portions of the Property will attract further risks. However, any proposals to develop within the existing shopping centre or develop new properties on the site of the WhitgiftCentre, will have to satisfy Anglo and AIAC with regard to the feasibility and commerciality of same. AIAC will act in the best interests of the Fund investors when assessing such proposals.
As mentioned previously, any capital expenditure on the Whitgift Centre in excess of 10% of gross annual income requires the consent of the Whitgift Foundation and the Royal London Mutual Insurance Society. It is worth noting that both bodies have given their consent to, and funded their share of the cost of, the historic major refurbishments carried out to date. Anglo is satisfied that it is in both parties commercial interest to continue to do so where a clear and compelling case exists.”
44. At p. 22, under the heading “Asset Management/Redevelopment Opportunities”, the brochure provided:-
“One of the key attractions of the Whitgift Centre is the opportunity to add substantial value by way of active asset management and redevelopment opportunities. Howard and the JV Partners believe that the Centre has not been managed to maximise its existing potential. Howard believe that with entrepreneurial management of this Centre, significant value can be unlocked over a 5-7 year period, which coincides with the £2.5bn spend on Croydon in general…
Redevelopment opportunities (subject to planning permission and, where applicable, head leaseholders/freeholders consents).
The JV Partners have identified a potentially attractive range of development opportunities, comprising residential, office and mixed use schemes. While these are subject to detailed evaluation and planning consents, Anglo consider that they represent a substantial opportunity to enhance the earnings and overall value of the asset over the medium to long-term.”(emphasis added)
45. In each case it is stated that the opportunities identified are not intended to be definitive or exhaustive.
46. The policy documents included supplementary provisions for the Whitgift Geared Property Fund which were stated to be supplementary provisions which attached to and formed part of the Bond. Paragraph 3.3 of the Bond provided:-
“By signing your Application and requesting that contributions should be paid into the Whitgift Geared Property Fund you agree, accept and acknowledge that:-
3.3.1 we have no responsibility to advise you as to the suitability of an investment in the Whitgift Geared Fund for your particular circumstances;…
3.3.4 you will not commence or bring and you hereby irrevocably waive any entitlement to commence or bring any legal or other proceedings against us arising out of or connected with the non performance of the assets forming part of the Whitgift Geared Property Fund or their failure to perform as you may have anticipated or expected”.
47. Paragraph 3.4 provides:-
“You specifically agree by signing your Application and requesting that contributions should be paid into the Whitgift Geared Property Fund that these Supplementary Provisions are fair and reasonable in the particular circumstances of an investment into the Whitgift Geared Property Fund and you acknowledge that you have had the opportunity to raise any concerns relating to these Supplementary Provisions with us.”
48. Enclosed with the other documentation was an investment bond cooling off notice which expressly gave the plaintiff a period of 30 days from the date of the letter to cancel the investment.
Developments in the period from 2006 – 2008
49. After concluding the two investments the plaintiff sought tax advice on the transactions from a Mr. Brian Bohan. In or around March 2006 he wrote to Mr. Bohan stating that the investment was expected to yield a return of 300% over a period of 7 – 9 years. He received no information from AIAC regarding the development of the Whitgift Centre, so he instructed UK solicitors on his behalf to conduct a planning search of the Whitgift Centre to ascertain if any applications for planning permission had been lodged. The results were negative. In February 2007 he wrote directly to Howard Holdings enquiring, inter alia, in relation to redevelopment proposals. The following year, on 6th February 2008, he wrote to the Bank stating that he was anxious to hear about the development plan for the Whitgift Centre and the results of any efforts to obtain planning permission.
50. While there may possibly have been some preparatory work done, it is not disputed that no application for planning permissions for re-development was ever applied for. None of the proposed potential developments ever came to pass.
The plaintiff’s complaints
51. These proceedings were commenced in 2011. In his statement of claim the plaintiff pleaded that there were 3 specific oral and written representations made by the Bank:-
(1) That the Whitgift Shopping Centre was projected to increase its rental income by stg£2m. year on year.
(2) That there existed significant potential to increase the rental income by reason of “existing asset management” and “new development” opportunities.
(3) That the potential return on investment after 10 years was between 220% and 300%.
52. The plaintiff contended that the oral representations were made by Mr. Hayes and the written representations were in a brochure provided to the plaintiff by the Bank.
53. The written representations upon which the plaintiff relies are those set out in the second loose-leaf brochure. The brochure identified 5 asset management opportunities as follows:-
“• Relocate pedestrian access along M&S
Forecast net added values £8.5m
Timeframe 3-5 years.
• Planning exists for 80k sq. ft. new space
Forecast net value added £5m
Timeframe 3 years
• Early lease renewals
Forecast value added £4.5m
Timeframe 1-3 years.
• Reconfigure M&S and River Island units
Forecast net value added £3.5m
Timeframe 3-5 years
• Increase Mall Income
Forecast net value added £3.5m
Timeframe 1-3 years”.
54. It identified 4 potential development opportunities:-
“WHITGIFT TOWER
25 STOREYS
200, 000 sq. ft.
OFFICES / RESIDENTIAL / HOTEL
PROFIT £15m
FOCUSHOUSE
15 STOREYS
125, 000 sq. ft.
OFFICES
PROFIT £10m
WESTERNGATEWAY
NEW RESIDENTIAL
FIVE STOREYS
110 FLATS
140,000 sq. ft.
PROFIT £12m
RESIDENTIAL TOWER
10 STOREYS
175 FLATS
160,000 sq. ft.
PROFIT £15m”.
55. Under the heading “Risks and Sensitivities” the brochure stated:-
“Whitgift Foundation. The WF owns the Freehold title to the property. Their consent must be received for all expenditure >£1m. We have met with the WF, who confirm that they will support and fund plans which will maximise the value of the Whitgift Centre.”
The plaintiff’s evidence in relation to the representations
56. In her judgment Costello J. found that the plaintiff’s evidence was, in many respects, “wholly unreliable and frequently inconsistent”, although she acknowledged he was giving evidence in respect of events which occurred nine years previously. He had no clear recollection of many of the key details of the case. He was clearly trying to reconstruct events to some extent by reference to the documents. Even making allowances for this fact, Costello J. stated that there were “some startling inconsistencies in his evidence.”
57. The plaintiff had pleaded that he met Mr. Hayes and Ms. Deacy at the Radisson Blu Hotel in Galway in the autumn of 2005. He says it was at this meeting that Mr. Hayes made his oral presentation and furnished him with the loose-leaf brochure. This presentation was what persuaded him to invest in the Whitgift Investment.
58. On the other hand Costello J. noted that in his witness statement dated 4th June 2014, the plaintiff alleged for the first time that the meeting occurred during the period the 11th – 15th July 2005. He stressed in the High Court that this was the correct date as his decision to invest in the Whitgift Geared Property Fund was made when he decided not to proceed with the Knightsbridge Investment. He cancelled the sterling he had pre-ordered to enable him to invest in the Knightsbridge Investment on 15th July, 2005. It was clear therefore that his evidence was he decided to invest in the Whitgift Fund on or before the 15th July 2005, at the latest.
59. The plaintiff, however, pointed to a second compliments slip from Ms. Deacy which was date-stamped the 15th July 2005. It read:-
“Attached please find up to date brochure FYI
I have also attached a copy mandate for you & partner to complete
Kind Regards
Margot Deacy”.
60. In view of the fact that it referred the most up to date version of the brochure, the plaintiff maintained that the loose-leaf brochure upon which he based his case was furnished to him by Ms. Deacy under cover of this compliments slip which he received on 15th July, 2005, rather than by Mr. Hayes at a meeting in the Radisson Blu Hotel in Galway. Costello J. then observed:
“He now accepted this meeting took place in October of that year. From expenses claims from the Bank and correspondence it is clear that this was on the Friday between 12th and 19th October 2005. Given the inconsistency of the plaintiff’s evidence in relation to this crucial meeting, I am unable to place any reliance on his evidence in relation to it.
By the conclusion of his evidence, the plaintiff’s case was that he decided to invest based on a brochure which he received in the post sometime on 15th July 2005. It was the second such brochure. He spoke with no one in the Bank in relation to the investment as outlined in that brochure, but in the late afternoon of 15th July 2005, he had made up his mind to invest in the Whitgift Geared Property Fund and to cancel his interest in the Knightsbridge Investment. Most importantly his decision to invest was made some months in advance of the oral presentation of Mr. Hayes upon which he had placed so much emphasis in his earlier testimony.”
61. Costello J. found other aspects of Mr. Spencer’s evidence were unreliable and that he was confused about the relevant dates and the times he received the different documentation. Some of the Bank employees were also uncertain about the critical times and dates. Here it must be recalled that all parties were giving evidence in 2014 about events which took place some nine years previously. Costello J. continued her narrative thus:
“Ms. Deacy gave evidence on behalf of the Bank and she accepted in evidence that she enclosed a brochure that related to the Fund with that compliments slip. Her evidence was that this was the prospectus brochure known as the Black Book. As Mr. Gerard Davis, the author of the Black Book, gave evidence to the effect that the Black Book had not been completed until late August, 2005, clearly Ms. Deacy’s evidence that the brochure referred to was the Black Book could not be correct. I accept on the balance of probabilities that Ms. Deacy enclosed a brochure with this compliments slip and on the balance of probabilities that it was not the Black Book. I am left to draw the inference that the loose-leaf brochure was enclosed with the compliments slip and the plaintiff had the brochure when he made his decision to invest in the Whitgift Fund. Therefore the written representations set out in the loose-leaf brochure were made to him prior to his decision to invest in the Fund. On the other hand I do not accept that the plaintiff has established that Mr. Hayes made the oral representation pleaded at para. 6(a) of the Statement of Claim. I dismiss his claim based upon oral representations allegedly made by Mr. Hayes on behalf of the Bank.”
62. No challenge was made in this Court to either of these two findings of fact.
Did the contents of the loose-leaf brochure amount to misstatements?
63. The plaintiff must, of course, establish as a prelude to any potential liability on the part of the Bank that the representations contained in the documentation which had been supplied to him were untrue. It is necessary to consider the evidence in relation to the asset management and development prospects of the Whitgift Centre in 2005. Given the way that the issues have been narrowed down for the purposes of an appeal to this Court, it is not necessary for me to review either the detailed planning or valuation evidence which has been comprehensively set out in the judgment of the trial judge. Nor do I find it necessary to review the evidence of the various banking experts adduced by both sides.
64. What is, however, of critical importance was the attitude of the Whitgift Foundation (“the Foundation”), since the representations made in relation to it and its attitude to any potential redevelopment formed a central part of the plaintiff’s evidence before this Court. It is to this evidence – and especially that of the Foundation’s surveyor, Mr. Stapleton – to which I will now turn.
The attitude of the Whitgift Foundation
65. The attitude of the Foundation was critical to the reasonableness and reality of many of either the asset management opportunities or the development opportunities. If the Foundation was likely to refuse consent to any development which required its consent or to refuse to contribute to the development costs of any development then, as Costello J. found:
“In reality, there was no real prospect of the development being carried out. In that case it would not be reasonable to identify any such development as an opportunity. While in theory it might exist, if as a fact consent and / or investment would not be forthcoming, it could not proceed.”
The evidence of Mr. Richard Stapleton
66. Mr. Richard Stapleton, the Surveyor to the Foundation gave evidence on behalf of the plaintiff. He had been surveyor to the Foundation since 1998. He indicated that the Foundation was an educational charity that had been established in the 16th century and had to be prudent in relation to its assets. He confirmed that prior to 2000 the Foundation had made capital investments in the Whitgift Centre alongside the other co-owners of the Centre to refurbish and improve parts of the Centre. He said that the Foundation had long formed the view that it should be reducing its investments in the Centre.
67. Mr. Stapleton said that he had two meetings with Howard Holdings in 2005. On the 27th May 2005, he met with representatives of Howard Holdings in Croydon. He confirmed that the Foundation’s formal approval would be required for any redevelopment of the Centre. He further stated that the Foundation’s established policy was to consider any specific proposals to improve the Centre on its merits and any decision as to the appropriateness of the Foundation giving its consent and/or investing in a proposal would depend on the advice it received at the time, including advice on viability, risk and availability of funds. It was made clear and it could not be assumed that the Foundation would be prepared to make any further investment. It was pointed out that under the terms of the lease there was no obligation on the Foundation to make further investment in excess of the capital limit (5% of net rental income). He stated that Howard Holdings’ representatives did not discuss any specific plans or proposals at that meeting.
68. On 20th June 2005, Mr. Stapleton met with representatives of the Bank and Howard Holdings. The Foundation was questioned about its aspirations for the Whitgift Centre and it was indicated that the Foundation’s prime concern was to ensure that the asset was properly managed and developed and that it was for the Asset Manager of the Centre to come forward with any specific development proposals. In the absence of specific proposals it was impossible to comment further. Mr. Stapleton said that he expressly asked the representatives of Howard Holdings to explain their plans for the Centre and they said they were not prepared to do so. None of the asset management opportunities or development opportunities identified in the loose-leaf brochure were raised at the meeting. Mr. Stapleton’s evidence was that if the Foundation had been shown the loose-leaf brochure they would have said that they would not fund the development opportunities – which he regarded as “speculative” – identified in that loose-leaf brochure.
69. Mr. Stapleton said that on several occasions during the meeting both Howard Holdings and the Bank asked precisely what the Foundation’s position would be on development proposals but that in the absence of specific proposals it was impossible to comment further. He said it was made clear that any proposal would have to be considered on its merits and that the Foundation did not have any significant funds to invest in the Centre.
70. Under cross-examination he agreed that in 2005 the Foundation was open to the idea of redevelopment of the Centre. He agreed that the attitude of the Foundation was one of openness to consideration of improvement in redevelopment opportunities, subject to detailed plans being submitted for consideration and risk assessment and with no guarantee that the Foundation would necessarily follow through with the proposed plan. He agreed that as no specific proposals had been discussed they were neither in nor were they out.
The plaintiff’s evidence in relation to the representations
71. As Costello J. observed, a crucial issue which had to be resolved was to what extent the plaintiff relied upon the statements of the Bank in relation to the prospects for a return when he decided to invest in the Whitgift Fund. The plaintiff was examined by his counsel at the hearing in relation to his understanding of the projected return of 165% over a ten year period (the base case)
“134Q… 165% return on investment, that would involve a growth of 65%: is that right?
A. That is my understanding of it, yes.” 6
72. The plaintiff was also cross-examined in relation to the Bank’s statement in the loose-leaf brochure to the effect that a combination of the base case, the asset management opportunities and the new development opportunities could give a return of 220%. He was questioned as to his understanding of this representation upon which he based his case. At one point the plaintiff commented:-
“470…
A. Yes. The figure of 220% including my investment would have been satisfactory to me.
471 Q. Well, the figure of 165 would too, if I’m right about the maths
A. Yes. Yes, it would.
472 Q. So if I’m right about that, if that’s what the return means, in fact you were being offered a figure higher than the figure you would have been happy to invest in.
A. If you are right about that, that is true. But my case is all about the realism of the figures.” 7
73. Costello J. found, based on the expert evidence, that a return of 165% meant the return of the investment plus 165%. This meant that the plaintiff’s understanding of 220% as including the return of his investment was, in fact, less than what was meant by a return of 165% which, it is common case, was a reasonable representation for the Bank to have advanced in 2005.
74. The plaintiff gave evidence that he was particularly interested in the development angle of the Whitgift Investment. This was confirmed by Ms. Deacy in evidence on behalf of the Bank. The Knightsbridge Investment likewise involved development opportunities, though they were not spelt out to the same degree as in the loose-leaf brochure. The plaintiff accepted that, on the assumption that he had been provided with the loose-leaf brochure in or around July 2005, further documentation was to come. He accepted that as an experienced solicitor the loose-leaf brochure was not the sort of document that was going to be a legally binding document surrounding the conclusion of an agreement. He stated:-
“… I agree with you the loose-leaf [brochure] wouldn’t have been an effective way of investing in this”.
75. The plaintiff accepted that at the latest he received the Black Book on the 5th December 2005. He said that he read it; he absorbed it and pondered it. He was asked whether he understood the document, he was asked did he note the guarded terminology and the absence of figures and he answered, that, in the words of Costello J. “it was legalese” and:-
“… it’s a different emphasis than what I had been told and what the brochure is saying or told me four months ago or three months ago.”
76. He said that if somebody had asked him to sign the Black Book he would not have signed it. He said:-
“I was relying on my rights as I felt that they were in how I got here.”
77. The plaintiff acknowledged that he understood that quite different things were being said to him in the Black Book. He believed that different things were being said to him in the Black Book than had been set out in the loose-leaf brochure. Specifically, he said that he believed that the Black Book was now saying that the Bank was not standing over the figures and that the development opportunities were difficult to quantify. He confirmed that he understood all of this and said that it did not dissuade him from proceeding.
78. In relation to the loose-leaf brochure he said that he took opportunities to be plans and that he took it that “the investment couldn’t fail”. On the other hand he accepted that it was a high-risk investment and that he understood the nature of geared investment.
Whether there had been any oral misstatements or misrepresentations
79. In her judgment Costello J. found that Mr. Spencer had not established on the balance of probabilities that any oral representation was made to him to the effect that the Whitgift Centre was projected to increase its rental income by stg£2m. year on year. She further noted that he had adduced no expert evidence in relation to this alleged representation and that this part of his claim could not succeed. This matter was not pursued on appeal.
The alleged misrepresentations
80. This left for consideration the allegations of the misstatements and misrepresentations contained in the Bank’s documentation.
81. The plaintiff’s case in negligent misstatement against the Bank rests upon representations which were made directly to him, as Costello J. had found that Ms. Deacy had posted him the loose-leaf brochure. It is clear, accordingly, that he is a person to whom the Bank owed a duty of care in accordance with the principle established in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465. If there were any doubt in the matter, I agree with Costello J. when she said that he was clearly “in the limited identifiable class of persons to whom the Bank sent the loose-leaf brochure and therefore to whom the Bank made the statements therein set out.”
82. While it was not unreasonable for the Bank to state that there existed asset development opportunities which had the potential significantly to increase the value of the Centre, the Bank nonetheless owed the investors (such as the plaintiff) a duty of care to ensure that the statements which it made in that regard were accurate and not misleading.
83. The new development opportunities were high level concept ideas and not definite plans. This is abundantly clear from both the scant information and the round figures attributed to the identified opportunities. Having reviewed the evidence, Costello J. stated that she did not believe that:
“….the identified asset management opportunities and new development opportunities were not unreasonable and, accordingly, the representation that they existed as opportunities did not amount to a misstatement in and of itself. Therefore I hold that the second alleged misstatement upon which the plaintiff bases his case falls.”
84. No appeal has been taken against that part of the High Court decision.
Misrepresentations contained in the loose-leaf brochure
85. At the heart of Mr. Spencer’s case – and the focus of the appeal to this Court – is the contention that the Bank’s written documentation contained a number of material misrepresentations. While these matters (which are, in any event, all inter-related) can now all be considered, I propose to turn first to an allegation of negligence, namely, that the Bank ought to have been aware of the letter which Mr. Stapleton (the surveyor to the Foundation) arranged to send to Mr. Sparrow of Howard Holdings some time after their first meeting on 27th May 2005.
86. The letter in question appears to have been dated 2nd March 2005 and was apparently addressed to the Foundation. The letter itself appears to have emanated from the solicitors for the superior landlord, the Royal London, whose consent (along with that of the Foundation) to any re-development would also have been necessary. It is, unfortunately, impossible to be more specific than this because the full text of the letter was not produced in evidence at the trial following objections from the Bank that it had not been included in Mr. Stapleton’s witness statement. The trial judge nonetheless ruled that the following portion of the letter could be received in evidence:
“We believe that it may be misleading not to point out that in 2004 and on other occasions the superior landlord and landlord have declined to support proposals brought forward by Arlington, specifically, the Phase 4 scheme.”
87. One way or another, the real significance of this letter is that it shows that the relevant landlords had previously refused to support the Phase 4 development just a year earlier.
88. Mr. Stapleton maintained in cross-examination that both Howard Holdings and the Bank were aware of this letter and that it formed the backdrop to the meeting of the June 20th meeting. The two witnesses from the Bank who were present at that meeting – Mr. Hayes and Ms. Lally – were not called to controvert that evidence. The Bank explained that Mr. Hayes was not available to it as a witness. Various explanations were proffered as to why Ms. Lally was not called.
89. In these circumstances, since Mr. Stapleton’s evidence was not controverted and was otherwise accepted by the trial judge, the inevitable conclusion must be that the Bank was at least aware in general terms of the March 2005 letter prior to the meeting of June 20 2005 and the negative implications this might have had for any proposals to build out the Phase 4 scheme. The failure to disclose this highly material fact to the investors in the context of representations which the Bank made concerning the feasibility of building out the Phase IV project amounted, in my view, to a negligent misstatement.
90. I now turn to a consideration of the various misrepresentations of which the plaintiff complains.
First misrepresentation: mutually exclusive development opportunities
91. Two of the opportunities for development identified in the loose-leaf brochure were, in fact, mutually exclusive. These developments were mutually exclusive because they each related to the same site within the Whitgift Centre. It would not thus have been possible to complete both the Phase IV development and the Whitgift Tower. While it is clear from the coloured version of the loose-leaf brochure that the two opportunities occupy the same site, I agree with the comments of Costello J. that “the inclusion of the two as opportunities with no note indicating that they were alternatives was misleading.” This was not seriously disputed by counsel for the Bank, Mr. McCullough S.C.
Second misrepresentation: the attitude of the Whitgift Foundation
92. Under the heading “Risks and Sensitivities”, the loose-leaf brochure identified the Foundation as the owner of the freehold title to the property whose consent must be obtained for any expenditure in excess of stg£1m.. As I have already noted, the attitude of the Foundation was accordingly of central importance if any development opportunities were to be progressed.
93. The second loose-leaf brochure (which the plaintiff received prior to his decision to invest) stated:
“We have met with the WF, who confirmed that they will support and fund plans which will maximise the value of the Whitgift Centre.”
94. The evidence was that Howard Holdings had two meetings with representatives of the Foundation in May 2005 and in June 2005. The Bank attended the second meeting which took place on 20th June 2005. As it happens, Howard Holdings did not and would not disclose to the Foundation any of its plans for the Centre, even in the broadest outline. They were asked by the Foundation on several occasions to give details of their proposals and they declined to do so. The Foundation, accordingly, had no opportunity to express its opinion in relation to plans for development which included residential, office and hotel developments.
95. The Foundation’s chief surveyor, Mr. Stapleton, emphatically rejected in evidence the suggestion that it had ever “confirmed” that it would support or fund such plans. He said that any proposal for re-development would have been considered on its merits. His note of the meeting of the 20th June 2005 was that the Foundation had expressly stated that “it did not have any significant funds to invest in the Centre.”
96. Four representatives of the Foundation attended that meeting: the Chairman, the Chairman of the Finance Committee, the Clerk to the Foundation and himself. In evidence Mr. Stapleton stated that the Foundation considered that it was too heavily invested in the Centre already. He said that if the Foundation had been shown the loose-leaf brochure it would have said that they would not fund the development opportunities identified in that loose-leaf brochure which he personally regarded as speculative. He agreed that while the attitude of the Foundation was one of openness to consideration of improvement, there was no guarantee that the Foundation would necessarily approve any proposal.
97. In my judgment, in the light of the evidence available to the High Court, this statement by the Bank in the second loose-leaf brochure must be adjudged to be seriously misleading. There was no basis at all for the statement that the Foundation had “confirmed” that it “will” support and “fund” plans which will maximise the value of the Whitgift Centre. The Bank ought to have known that this statement – which was of central importance to the possibilities of re-development on the site – could not possibly have been true.
98. A key selling feature of the project was the identification of the four specified potential development opportunities in the loose-leaf brochure. As Costello J. herself recognised, it would have been fair for any reader of the brochure to assume that the Foundation’s support for potential re-development would include at least some of the new development opportunities identified in the brochure itself. As Costello J. stated (at paras. 149 et seq. of her judgment):-
“The approval of the Whitgift Foundation of the plans of the Whitgift Centre was absolutely fundamental to any of the new development opportunities. Simply put, none of them could be achieved without the consent of the Foundation and none of them could be realised without the pro rata funding commitment from both the Whitgift Foundation and Royal London. The Bank was fully aware of the vital importance of the Whitgift Foundation and yet failed to ascertain even in the broadest terms the attitude of the Foundation where representatives to the plans for the development of the Centre which it was promoting to its clients and potential investors in the Fund. The overall impression from the loose-leaf brochure was that the Whitgift Foundation was aware of the identified opportunities and was in principle supportive of the opportunities. This impression was subsequently reinforced by the Black Book where it was stated at p. 14:-
“The Whitgift Foundation has given its consent to, and funded its share of the cost of major refurbishments carried out in 1985 and 1998 respectively. Clearly it has an incentive to do so, as beneficiaries of c.25% of gross rental income. AIAC, Anglo and the JV Partners have met with the Whitgift Foundation and are satisfied that the Foundation is in favour of the progressive nature of Howard’s plans for the Centre, but clearly can give no guarantee with regard to any consents.” (emphasis added) It was reasonable to assume that the Foundation had been informed of the broad nature of the plans outlined in the Black Book and was generally in favour of them. It is true that it was stated that the Bank could not guarantee that it would consent to any particular proposal. Nonetheless it appeared that the Bank had met with the representatives of the Foundation and ascertained that the Foundation was aware of the possible plans, that they included the plans identified in the Black Book and that it was in favour in principle of Howard Holdings’ plans and that the Bank had no reason to believe otherwise.”
99. The evidence established, however, that none of these development plans identified in the loose-leaf brochure (or, subsequently, in the Black Book) had ever been put before the Foundation, even though, as I have already noted on more than one occasion, at the one meeting at which the Bank attended (on 20th June 2005), the Foundation had specifically asked for details of what Howard Holdings and the Bank had in mind. It is striking that the Bank did not in fact put before the Foundation the re-development proposals which it was at the same time assiduously marketing to its clients as re-development opportunities which the Foundation would in principle support and fund. The available evidence suggests that the Foundation would not have countenanced speculative development of this kind, much less funded this.
100. The Bank had been present at a meeting where both it and Howard Holdings had consciously declined to specify the nature of any such re-development proposals to the Foundation. Indeed, this was acknowledged by Ms. Marian Lally, when she sent an email on 12th July 2005 to Mr. Sparrow of Howard Holdings in advance of a meeting with Royal London on 15th July 2005:
“….given that [Royal London’s] consent is required re any development/funding we undertake, we would need to satisfy ourselves that they were supportive. I’m not planning a hard commitment here – just something similar to our meeting with the Whitgift Foundation, to introduce ourselves etc.”
101. This email is consistent with Mr. Stapleton’s evidence to the effect that no proposals were advanced by either the Bank or Howard Holdings at that meeting, which Ms. Lally had clearly regarded as being simply introductory and non-committal in nature.
102. It followed that the Bank must have known that these representations in the second-loose leaf brochure regarding the Foundation’s support and funding could not possibly have been true. I agree with the conclusions of Costello J. (at para. 149 of her judgment) that these representations were, accordingly, false and seriously misleading. I am also of the view that these misrepresentations were made in a negligent fashion.
Third misrepresentation: The Phase IV development
103. The second version of the loose-leaf brochure presented the Phase IV development (“Planning exists for 80k sq.ft. new space”) as a current opportunity when, as it happens, the Home Secretary was in occupation of the land in question pursuant to a lease that was to run to December 2010. It also envisaged that this development would happen within a timeframe of three years.
104. The previous managers of the Centre had been negotiating with the Secretary of State in June and July 2005 for a surrender of the lease when the loose-leaf brochure(s) were being circulated and when the Black Book was being drafted. The Black Book stated (at p. 22), however, that:
“Planning permission exists for 80,000 sq.ft. of new retail space in the Centre. Discussion regarding pre-lets are advanced with a view to complete in early 2006.”
105. The managers believed that an agreement might be reached to surrender the lease in whole. Costello J. considered that it followed that “neither the loose-leaf brochure nor the Black Book were incorrect at the time that they were written.” She added:
“On balance, I do not accept that the failure to make clear that the right to develop the Phase IV plans would not have arisen until 2010 is sufficient to amount to a negligent misstatement.”
106. For my part, I take a different view: I fear that I cannot agree that neither the loose-leaf brochure nor the Black Book were incorrect at the date of writing by failing to make this clear. The representation made by the Bank clearly implied that the lands were immediately available, when as matters stood the lands in question were not available for re-development for another five and a half years. Indeed, the second version of the loose-leaf brochure expressly mentioned a time frame of three years for the utilisation of the Phase IV planning permission. The Black Book added that “Discussions regarding pre-lets are advanced with a view to completion in early 2006.” All of this underscored the clear impression which had been given that the lands were immediately available for re-development. It is hard to see how this is not a material misrepresentation of the true facts: who, for example, would be prepared to invest in a re-development project in respect of certain lands only later to be told that the developers did not have immediate access to the land and would only be entitled to obtain such access in five and a half years time?
107. It is true that the Bank had hopes that the Secretary of State might be prepared to effect a surrender of the lease and that negotiations to this effect were on-going in early summer of 2005. On 5th October 2005 the Secretary of State indicated that he was refusing to surrender the lease in question. This had the effect of dashing any hopes which either Howard Holdings or Anglo had for the development of Phase IV, certainly in the short to medium term.But this makes the failure to disclose these essential facts all the more troubling and, frankly, unacceptable.
Fourth misrepresentation: the statements in the Black Book
108. The formal fund brochure (known as “the Black Book”) was prepared at the end of August 2005. Three fundamental representations were made by the Black Book:
109. First, the Bank endorsed the representations of the potential six new development opportunities in the form already identified in the second loose-leaf brochure which were repeated again. Specifically, the Bank stated that:
“Anglo consider that they represent a substantial opportunity to enhance the earnings and overall value of the asset over the medium to long term.”
110. This, however, was a just a re-statement of what had been stated in the second loose-leaf brochure and it was just as misleading. The clear impression was given that the Foundation had been informed of the identified potential projects (four of which were set out in pictorial form on the following page) and was broadly in favour of these developments. This, as we have seen, was untrue.
111. The second misrepresentation was that Anglo were satisfied “that the Foundation is in favour of the progressive nature of Howards’ plans for the Centre, but clearly can give no guarantee with regard to any consents.” This statement was completely untrue: as we have seen, Anglo and Howard had expressly declined to give the Foundation any outline of its proposed plans, so the Foundation could not possibly have given even broad assent to this.
112. The third misrepresentation was that planning permission “exists for 80,000 square feet of new retail space in the Centre. Discussions regarding pre-lets are advanced with a view to completion in 2006.” It is true that planning permission had indeed been granted for this Phase IV proposal. But the utilisation of this planning permission was contingent on the appropriate consent being given by the Foundation and, to repeat, Anglo had never disclosed its plans in this regard to the Foundation.
113. In any event, the development of Phase IV was contingent on the surrender of the lease by the Home Office (Secretary of State), a fact which, as we have seen, was not revealed to investors. Nor was Mr. Spencer informed that on 5th October 2005 the Home Office had refused to surrender the lease. In this context, the statement contained in the Black Book to the effect that there had been discussions with regard to pre-lets with a view to completion in 2006 without disclosing this other information was grossly misleading.
Whether the plaintiff could rely on the loose-leaf brochure(s) to ground an action for misrepresentation and negligent mis-statement?
114. In her judgment Costello J. proceeded to examine whether the plaintiff could rely on the statements contained in the loose-leaf brochures. In this regard Costello J. referred with approval to the following statement of principle contained in the judgment of Lord Oliver in Caparo Industries plc v. Dickman [1990] 2 AC 605, 638:
“… the necessary relationship between the maker of a statement or giver of advice (‘the adviser’) and the recipient who acts in reliance upon it (‘the advisee’) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given;(2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment.”
115. Costello J. then continued:
“It is necessary therefore to consider the representations in the context in which they were made. They were in a loose-leaf brochure that was given to certain clients of the Bank with a view to ascertaining whether or not they would be interested in investing in the Whitgift Geared Property Fund. If the client expressed an interest in the product then they would be furnished with additional, more detailed information than that set out in the loose-leaf brochure. They could attend oral presentations and they would receive the formal contract documentation including the Black Book. In the case of the plaintiff, he attended a presentation on the investment with Mr. Hayes in October, 2005 and he received all of the contract documentation including the Black Book. He had a 30 day cooling off period if, on reflection, he did not wish to proceed with the investment in the light of this finalised documentation. The plaintiff correctly accepted that the investment could not have been made on the basis of the loose-leaf brochure and he acknowledged that further documentation would be provided. The loose-leaf brochure was not the Bank’s final word on the proposed investment. The plaintiff must show that the Bank should have realised that the statements were likely to be acted upon by the plaintiff for the purpose for which it was intended without independent inquiry. So the plaintiff must show that the purpose of the statements was to induce clients of the Bank to invest in the Fund and not simply to ascertain the level of interest amongst the clients of the Bank.”
116. Costello J. then referred to the judgment of Clarke J. in Raiffeisen Zentralbank Osterreich AG v. The Royal Bank of Scotland plc [2010] EWHC 1392 (Comm):
“82. In the case of an express statement, “the court has to consider what a reasonable person would have understood from the words used in the context in which they were used”: IFE Fund SA v Goldman Sachs International [2007] I Lloyd’s Rep 264, per Toulson J at [50] (upheld by the Court of Appeal [2007] 2 Lloyd’s Rep 499). The answer to that question may depend on the nature and content of the statement, the context in which it was made, the characteristics of the maker of the statement, of the person to whom it was made, and the relationship between them.”
117. Costello J. then stated:
“The plaintiff gave evidence that the loose-leaf brochure was not the sort of document that was going to be a legal binding document. He also says that he took the opportunities identified in the loose-leaf brochure to be plans and he took it that “the investment couldn’t fail”. He knew and accepted that further contractual documentation would be forthcoming. In determining the status of the loose-leaf brochure it is important to put it in context. It was provided to potential investors to ascertain their interest in investing in the Fund. It could not form the basis of the investment in the Fund. Further detailed documentation was required and was in fact forthcoming. Most importantly that documentation advised parties to take their own independent financial legal and tax advice and it afforded each of the investors a 30 day cooling off period. Seen in this context, I do not accept that the statements in the loose-leaf brochure had the character of statements upon which the representee was intended and was entitled to rely. So, on this basis his claim founded on the statements in the loose-leaf brochure must fail.”
118. I find myself for several reasons in respectful disagreement with this analysis.
119. First, it has always been the law that pre-contractual representations could – in principle, at any rate – form the basis of a subsequent action for negligent misstatement, even though the parties always understood that the representations in themselves could not form the basis of a contractual agreement and that further, more formal documentation would be forthcoming.
120. Many, many examples of this proposition could be cited. One Supreme Court decision must suffice for the purposes of illustration: in Gahan v. Boland, Supreme Court, 20th November 1984, the plaintiff sought rescission of an agreement to purchase a house. It was accepted that the purchaser had inquired of the vendor whether the house in question would be affected by the construction of the (then) projected M50 motorway. It was further accepted that the vendor had assured the purchaser that this was not the case and the purchaser signed the contract based on that assurance. The purchaser later discovered that the proposed motorway was routed to pass through the property.
121. While it was accepted that the representation was made innocently, the Supreme Court also noted that the evidence had also established that this representation was false; that it was a material one “with the intention of inducing the plaintiff to act on it” and that it was “one of the factors that induced the plaintiff to enter into the written contract on the following Monday to purchase the property.”
122. In the present case the representations went beyond what O’Hanlon J. described in Donnellan v. Dungoyne Ltd. [1995] 1 I.L.R.M. 388, 396 as mere “sales talk.” On the contrary, very clear and specific statements were made in the loose leaf brochure(s) which – if words are to have any meaning at all – were designed to induce the plaintiff to invest in the project.
123. Second, following on from this, it is quite clear that a key purpose of the loose-leaf brochure(s) was to persuade investors such as the plaintiff to invest in the project. I think, with respect, it would be quite unreal to regard the purpose of the brochure(s) as being simply to gauge the level of potential interest. It is rather the case that potential investors were interested in the project precisely because of the representations contain in these loose-leaf brochures.
124. This is borne out by what happened to the plaintiff himself. He had originally committed himself to investing in the Knightsbridge project, but Ms. Deacy requested him to defer investing in that project until she had an opportunity of persuading him to invest in the Whitgift Centre. There can be no suggestion that the plaintiff’s will was somehow overborne by Ms. Deacy. It is, however, clear, that she wanted the plaintiff’s business and the promotional loose-brochure(s) were an integral part of this sales-pitch.
125. As Costello J. herself found, by the end of June 2005 Ms. Deacy had met with the plaintiff for this purpose and then immediately sent him the first version of the loose-leaf brochure. The plaintiff committed himself in principle to the investment and by mid-July 2005 he was sent the second version of the loose-leaf brochure.
126. The only rational inference to be drawn from this sequence of events is that these brochures were sent not simply for the purpose of gauging interest in the project, but were also designed to persuade persons such as the plaintiff to invest. It would be manifestly unfair and at odds with the principles of good faith upon which the entire law of contract is founded, if those who made specific statements designed to induce others into enter into contractual relations were later to be allowed to resile from that position and to claim that such statements were not to be taken seriously.
127. Third, I cannot agree that it is material to this issue that the plaintiff had the opportunity of consulting legal or tax advisers or that he had the benefit of a 30 day cooling off period. His own legal and tax advisers would doubtless have assumed that the representations contained in the various documentation were true and had been fairly made. These advisers could have had no insight, for example, into whether the Foundation had committed itself to supporting and funding the Bank’s proposals. To take another example: how, it might be asked, could they have known that the British Home Office had no intention of surrendering a lease of lands which the Bank’s documentation had represented as being immediately available?
128. Nor is it relevant in this context that the plaintiff had a 30 day cooling off period. There must be little doubt that if the plaintiff had known at the time of the extent to which he had become the unwitting victim of a sustained series of misrepresentations at the hands of the Bank that he would have exercised his option to cancel the investment within the 30 day period. The party who uttered these misrepresentations cannot, however, be heard to place the onus on the plaintiff to cancel a contract which by their own actionable misrepresentations they had induced him to enter.
129. Fourth, it is true that all the parties (including the plaintiff) recognised that no investment could take place simply on the basis of the loose-leaf brochures and that further documentation (including the exchange of binding legal contracts) was required. But, it might be asked, what further investment-related documentation was the plaintiff going to receive?
130. Costello J. found that the plaintiff relied exclusively on the documentation supplied by the Bank and the Bank knew this when it supplied that documentation to him, as quite obviously he had no independent knowledge of these matters. In this context, the formal contractual and banking documentation relating to the loan itself had no bearing on the investment decision. This formal documentation was simply the vehicle whereby the contractual relationships came into existence and it quite obviously did not address the underlying commerciality of the project. It is quite clear, therefore, that all parties knew that the plaintiff’s investment decision was going to be based on either the loose-leaf brochure(s) or the Black Book or a combination of the representations contained in this documentation.
131. All of this meant that the representations contained in these brochures and Black Book were potentially operative in any investment decisions which this plaintiff (or, for that matter, any other investor) was to take. As Smith J observed in the Australian case of Jones v Dumbrell [1981] V.R. 199, 203:
“When a man makes a representation with the object of inducing another to enter into a contract with him, that other will ordinarily understand the representor, by his conduct in continuing the negotiations and concluding the contract, to be asserting, throughout, that the facts remain as they were initially represented to be. And the representor will ordinarily be well aware that his representation is still operating in this way, or at least will continue to desire that it shall do so. Commonly, therefore, an inducing representation is a ‘continuing’ representation, in reality and not merely by construction of law.”
132. This passage was expressly approved by Lord Reed JSC for the UK Supreme Court in Cramaso LLP v. Ogilvie-Grant [2014] UKSC 9, [2014] AC 1093. Admittedly, Lord Reed acknowledged that there may be cases where a misrepresentation does not have a continuing effect, because “it is withdrawn or lapses”, or because the other party discovers the true state of affairs before the contract is concluded, so that it cannot induce the other party to enter into the contract and therefore cannot affect its validity or give rise to a remedy in damages for any loss resulting from its conclusion. Critically, however, Lord Reed JSC added:
“The continuing effect of a pre-contractual representation is reflected in a continuing responsibility of the representor for its accuracy. Thus a person who subsequently discovers the falsity of facts which he has innocently misrepresented may be liable in damages if he fails to disclose the inaccuracy of his earlier representation: Brownlie v Miller (1880) 7 R (HL) 66, 79; Brownlie v Campbell (1880) 5 App. Cas. 925, 950 per Lord Blackburn. The same continuing responsibility can be seen in the treatment of representations which are true when made, but which become false by the time the contract is entered into: see, for example, Shankland & Co v Robinson & Co 1920 SC (HL) 103, 111 per Lord Dunedin. The law is thus capable, in appropriate circumstances, of imposing a continuing responsibility upon the maker of a pre-contractual representation in situations where there is an interval of time between the making of the representation and the conclusion of a contract in reliance upon it, on the basis that, where the representation has a continuing effect, the representor has a continuing responsibility in respect of its accuracy.”
133. This principle is illustrated by the facts of Cramaso itself. In that case A considered taking a tenancy of a grouse moor in Scotland, but was concerned about possible over-shooting on the moor and the availability of sufficient levels of grouse. B, a representative of the owner, provided a count of the grouse which was designed to re-assure A. A did not in fact proceed with the transaction, but B then asked A to forward the assurance (contained in an email) to C who was also considering investing. Acting on foot of this representation, a few months later C entered into the lease of the lands.
134. C later discovered that the counting areas were not representative of the moor as a whole and that the grouse population was smaller than he had believed. It would in consequence take longer for the population to recover to the point where shooting could take place at the level which he had intended. The UK Supreme Court accepted that the email contained a material misrepresentation, namely an implicit representation that the counts were representative of the population of grouse on the moor. Critically, however, the Court found that the email was a continuing misrepresentation which had induced C into taking the lease of the lands.
135. In my view, the same was true here. The representations made in the loose-leaf brochures were obviously designed to induce investors to invest in this project and were obviously continuing representations. It is true that, as the plaintiff himself accepted in evidence, the language of the Black Book was, in some respects, more guarded than the loose-leaf brochure(s). There was, however, nothing at all to suggest that the Bank had expressly disavowed the earlier representations contained in the loose-leaf brochure to the degree that the law requires. This, however, is to anticipate somewhat, because it is next necessary to consider the evidence in relation to the Black Book.
The Black Book.
135. It is next necessary to review the evidence in relation to the formal fund document, the Black Book. Costello J. made a specific finding that the plaintiff had received this document at a meeting in a hotel in Galway on either 12th October 2005 or 19th October 2005. The significance of this is that she found that as the plaintiff had received the Black Book before he subsequently made any contractually binding investment decisions, this had the effect of superseding all previous representations contained in the loose leaf brochure.
136. What, then, was the evidence to justify that finding? The plaintiff himself denied that he had received the Black Book at that October 2005 meeting and that it was only supplied to him in December 2005. It should be noted, however, that Costello J. found that, given certain inconsistencies in Mr. Spencer’s evidence, she could not place reliance upon it. On the other hand, the only evidence from the Bank referable to this point was that of one of its employees, Mr. Greg Tynan, who attended the Galway meeting. Mr. Tynan was cross-examined on his witness statement as follows:-
“527 Q. It seems to me that you were very careful in that particular passage not to address the question of whether or not the fund brochure was actually given to Mr. Spencer at that meeting; isn’t that correct?
A. Well, I do not recall giving him a brochure. I am not sure, you know, where he got the brochure or if he got the brochure. All I can say is I don’t remember giving him the brochure. The issue of whether, you know … I don’t really understand in terms of … the point is that’s what I remember. I can’t say anything more than that. I don’t remember giving him the brochure.” (emphasis added)
528 Q. No, but in that paragraph you are referring to two different types of document; isn’t fair to say?
A. Yeah, well, I mean, for me, the brochure is the Black Book brochure.”
137. However, the witness then went on to state that, as the Black Book was in circulation at that time, he believed that the plaintiff would have been provided with a copy at the meeting. Mr. Tynan was then further cross-examined as follows:-
“548 Q. That document would absolutely have been discussed with Mr. Spencer?
A. Whether ….
549 Q. Where in your statement do you say that?
A. Well, I don’t say it in that, but in my view is that it would have been discussed at that meeting. But before Mr. Spencer would have completed his full details, a full statement, that he definitely would have had a copy of that. My recollection …
550 Q. Sorry, hold on a moment now. We are moving on a little bit in terms of the narrative. Just deal with the meeting at the moment?
A. Yes.
551 Q. Do you have a specific recollection of Mr. Spencer being given the black book at that meeting?
A. I don’t have a specific recollection. I didn’t say that I did.
553 Q. Did you by what you said a moment ago suggest that he was given it on some prior occasion?
A. No, I didn’t suggest that. “
138. Pausing at this point, it cannot be said that the evidence of Mr. Tynan was unequivocal on this question. He agreed that he had no clear recollection as to whether Mr. Spencer had been given the Black Book at the meeting: taken at its height, his evidence was really that he assumed that the plaintiff would have been given the Black Book prior to the investment on the basis that this had been the Bank’s standard practice. If the evidence had rested there, I consider that Costello J. would have been perfectly free to prefer the evidence of Mr. Tynan to that of the plaintiff and, accordingly, to conclude on the balance of probabilities that Mr. Tynan had given him the Black Book at the meeting.
139. There was, however, other relevant evidence in this context to which the trial judge did not refer. At least one other witness, a Mr. David Raethorne, stated unambiguously that he had invested in the Whitgift project on the basis of representations contained in the loose-leaf brochure(s) and before he had been supplied with the Black Book. He executed the appropriate documentation on the 11th October 2005 and transferred the funds some two weeks later. He gave unchallenged evidence to the effect that he had received an email from Ms. Lally on 1st November 2005 thanking him for his investment and stating that the policy documentation would be sent as soon as it was to hand. Mr. Raethorne stated that he had received the Black Book on 20th December 2005.
140. Counsel for the Bank, Mr. McCullough S.C., submitted that this Court was bound by the trial judge’s finding by reference to standard Hay v. O’Grady principles (Hay v. O’Grady [1992] 2 I.R. 210). The Supreme Court has, however, made it clear that findings of fact of this nature are not inviolate where, in the words of Clarke J., there has been a “material and significant error in the assessment of the evidence” or where there has been “a failure to engage with a significant element of the evidence put forward”: see Wright v. AIB Finance and Leasing Ltd. [2013] IESC 55 and Doyle v. Banville [2012] IESC 25.
141. Given the importance of this factual finding – on which, it would be fair to say, a good deal of the conclusions of the High Court ultimately rested – it was accordingly necessary for the trial judge to have engaged with the evidence of Mr. Raethorne. As we have seen, Mr. Tynan did not positively assert that he had given the Black Book to Mr. Spencer at the October 2005: rather, he had assumed that Mr. Spencer had the Black Book at the time because – it is to be inferred from his evidence – this was the Bank’s standard practice. If, therefore, Mr. Raethorne’s evidence was correct, then it tended to undermine a critical aspect of Mr. Tynan’s evidence, because that was certainly a case where that practice (if such it was) was not followed.
142. Putting this another way: given the evidential conflict, then in any assessment of the evidence touching on the question of whether Mr. Spencer must have been given the Black Book in advance of investing and whether he received it at the October 2005 meeting, it would also have been necessary for the trial judge to consider and weigh the evidence of Mr. Raethorne. As, however, Costello J. did not do so, I find myself most reluctantly driven to the conclusion that for this reason alone that finding of fact cannot stand.
143. If matters stood at that point, then, given the paramount importance which this finding of fact assumed in Costello J.’s judgment, a re-trial might well have been necessary. In the event, however, for reasons I am about to set out, I do not think that such a step is in fact necessary.
Whether the Black Book had the effect of superseding all the earlier representations?
144. In her judgment Costello J. found that the plaintiff had acknowledged in evidence that the Black Book no longer contained the estimated returns contained in the earlier loose-leaf. The Black Book further indicated that the development opportunities were difficult to quantify. Costello J. then continued:
“Despite these differences [between the loose-leaf brochure and the Black Book] this did not dissuade [the plaintiff] from continuing with the investment. In the light of this evidence I conclude that the plaintiff in fact did not rely upon the statements in the loose-leaf brochure or, to put it more correctly, purported to rely upon them when he had no entitlement to do so. Certainly, as concerns his case based on the figures in the loose-leaf brochure, these were corrected and were corrected to the knowledge of the plaintiff in the Black Book. He had absorbed it and pondered it and noted that the Bank was not standing over the figures and that the development opportunities were difficult to quantify. In my opinion this amounted on the part of the Bank to a correction of any misrepresentation that occurred in the loose-leaf brochure. As Cartwright stated at para. 3-11:-
“Since the test for whether a statement is an actual misrepresentation generally looks to whether it was false at the moment it was acted upon by the representee, it follows that a misrepresentation which is made but is adequately corrected before the representee acts upon it is not longer actionable. In such a case it can be said either that there is no longer a misrepresentation, or that the representee in acting in the knowledge of the truth is no longer relying on the representation. The correction may be made by the representor, or by a third party, or by the representee independently discovering the truth. But the correction must be sufficient to remove the effect of the original misrepresentation: a partial or inadequate statement is not sufficient. Where, however, the true position appears clearly from the very terms of the contract which the representee claims to have been induced to enter into by the misrepresentation, the misrepresentation will have been “corrected” as long as the claimant is bound by those terms.”
145. Once again I find myself in respectful disagreement with the trial judge. The Black Book did not, of course, repeat the figures giving in the loose leaf brochure(s) regarding the potential rate of return. There was, indeed, a statement in the Black Book to the effect that it was difficult to quantify the rate of return. This, however, was the extent of the correction, if such it can be fairly described. One thing, however, is clear: even if the Black Book statements can be regarded as a correction, they are at best a partial correction and they could not be regarded as being sufficient to have removed the impression on investors regarding the potential rate of return which the loose-lead brochures had served to create.
146. In any event, this was the limit of the extent to which the earlier misrepresentations contained in the second loose-leaf brochure by the Black Book had been corrected. As I have earlier found, the Black Book still contained three serious misrepresentations, none of which were corrected – even partially – prior to the execution of the contract by the plaintiff in October 2005.
147. What, then, were the misrepresentations on the part of the Bank which were contained in the Black Book? First, it endorsed the development potential opportunities found in the Black Book, even though by this stage Anglo must have known that the Foundation had not been given any opportunity – either by it or by Howard Holdings – of considering these proposals. Second, it asserted that the Foundation was in favour of the progressive nature of Howard Holdings’ plans for the Centre, when the Bank must have known that this was not so. Third, it asserted that some 80,000 sq.ft. of retail space was on the cusp of being developed in the course of the Phase IV development without revealing that this could not happen without the surrender of a lease by the British Home Office, which lease had still five years to run. Nor was the plaintiff told at the meeting at Radisson Blu Hotel in Galway which was held a few days thereafter (sometime between the 12th and 19th October 2005) that some days previously the Home Office had refused to surrender the lease.
148. This in itself is sufficient to doom the Bank’s defence to the action for actionable misrepresentation, unless the Bank can show by unequivocal evidence that despite the actionable misrepresentations the plaintiff would have invested in the project in any event. It is true that the plaintiff was interested in the handsome returns projected by the Whitgift Centre project as a whole, but a critical element of that investment was the development potential which the Bank had held out to the investors (including the plaintiff) as having had the imprimatur in principle of the Foundation, when this was simply not the case.
Causation
149. At the heart of the Bank’s defence on the causation point is that the plaintiff stated in evidence that he would have been prepared to accept a return of 165% even though this is what was projected from the so-called “dry” case scenario, i.e., simply asset management of the Centre even without actual re-development or the utilisation of any of these development opportunities. It was accordingly submitted that the plaintiff would have invested in the project anyway in reliance on the project’s “dry case” projected returns.
150. This submission was accepted by Costello J. when she said (at para. 165):
“The plaintiff gave evidence that he would have invested in the Whitgift Fund if it gave a return of 220%. As referred to above, his understanding was that this meant 220% including his own investment of €1 million. It was common case that a return of 165% (as set out in the loose-leaf brochure) meant the return of an investor’s investment plus 165%. It was reasonable for the Bank to make this statement. This meant that the Bank made a reasonable representation to the plaintiff that he would get a return which was greater than that upon which, on his own evidence, he would have been prepared to invest in the Fund. It follows therefore that he has not established that he would not have invested in the Fund had he known the true figures (as he alleges) in relation to the projected returns for the asset management opportunities or the new development opportunities.”
151. Again, I find myself unpersuaded by this reasoning. As I have already found in this judgment, the Bank is guilty of a series of negligent statements which amounted to actionable misrepresentation. With one possible exception – the first misrepresentation regarding the development opportunities which were mutually exclusive – all of these misstatements and misrepresentations were seriously misleading. If the plaintiff was, indeed, aware of these matters in the Autumn of 2005, I find it difficult to believe that he (or any other reasonable investor) would have persevered with this investment.
152. In this respect the present case is very different from McCaughey v. Anglo Irish Bank [2011] IEHC 54. In that case it emerged that the Bank had failed to disclose a zoning difficulty to potential investors who were considering investing in a New York property project. Birmingham J. found no causation, saying:
“….no reasonable, prudent investor who found the proposed investment otherwise attractive is likely to have been dissuaded from investing by being told about the reality of the zoning issue.”
153. Applying that test to the present one, it is hard to see how any reasonable, prudent investor would have continued with the Whitgift project had they known, for example, that, contrary to the express representations made by the Bank, the Foundation had been given no proposals for re-development or that it was not prepared to fund such proposals or that the British Home Office was in occupation of some of the lands on a lease that had over five years to run and that they had declined to surrender that lease.
154. It is, in my view, impossible on the facts of this case to segregate out the development potential from the other asset management aspects of the project: indeed, the Bank’s own promotional literature at the time was the first to trumpet the importance of the development potential of these assets. Like many investors, the plaintiff was probably influenced by a range of factors. But, as O’Hanlon J. observed in Donnellan v. Dungoyne Ltd. [1995] 1 I.L.R.M. 388, 397, it is sufficient that the issue of development potential was “ a contributing factor in inducing the plaintiffs to undertake the contractual commitments to the defendant….”.
155. All the evidence showed that this was so. The plaintiff gave evidence that he would have stayed with the Knightsbridge option if the Whitgift project had simply involved passive asset management. He had explained that while he would have been prepared to accept asset management in Knightsbridge given its prestigious location, he would not have done so in the case of Croydon. The irresistible inference from the evidence of Ms. Deacy – who fairly acknowledged the plaintiff’s interest in the re-development potential of these projects within the Whitgift Centre – is that she persuaded him to avail of the Whitgift option and to cancel the Knightsbridge option, precisely because of the development potential associated with the Croydon project.
156. The plaintiff’s subsequent actions are also consistent with this conclusion. Between 2006 and 2008 he pursued with the Croydon planning authorities the issue of whether any application for development of the Centre had ever been lodged. In the light of all that has occurred, it is, perhaps, not surprising to learn that no such planning application for any development was ever subsequently lodged.
Conclusions
157. It follows, therefore, that for all the reasons specified in this judgment, this appeal must be allowed.
158. The sorry events described in this judgment – a veritable Pelion of misrepresentations heaped upon an Ossa of negligence- bring little credit to the Bank. In all of these respects, the conduct of the Bank fell below the standards of responsibility which this Court has every right to expect and demand from the holder of a banking licence and from that of its employees.
159. This conduct has had serious consequences for the plaintiff. By 2010 the value of the equity of each investor dropped to nil. The loss has subsequently crystallised by the sale of the underlying asset by the IBRC. These are losses which the plaintiff is entitled to say he would have avoided but for these misrepresentations and negligence on the part of the Bank.
160. It is, of course, true that the plaintiff entered into this investment knowing that it was high risk. But even those who invest in high risk projects are entitled to be protected by the law in respect of negligence and misrepresentation.
161. I would accordingly allow the plaintiff’s appeal and remit the matter to the High Court for an assessment of damages. It follows from the terms of this judgment that I would also dismiss the notices to vary lodged by both the Bank and Stapleford against those findings of misrepresentation made by the High Court.
McAnarney v Hanrahan
Sean McAnarney and Deirdre McAnarney v John Hanrahan and T.E. Potterton Ltd
1988 No. 5706P
High Court
16 July 1993
[1994] 1 I.L.R.M. 210
(Costello J)
COSTELLO J
delivered his judgment on 16 July 1993 saying:
The facts
Nearly nine years ago, on 4 December 1984 and again on 21 December 1984, conversations took place between the plaintiffs and Mr Hanrahan (the first named defendant). At that time Mr Hanrahan was an auctioneer in the employment of the second named defendant. The conversation related to the possibility that the plaintiffs might purchase a residential licensed premises in *212 Athboy, Co. Meath. Not surprisingly recollections are infirm about what was said and a clash of evidence has resulted. Liability in this case depends entirely on which version of the evidence I accept and I should begin this judgment by giving my conclusions on this point.
I think that the recollections of the plaintiffs and their solicitor, Mr Binchy, are more accurate than that of Mr Hanrahan and Mr Potterton (the principal in the defendant firm) and their version of events finds support in the contemporary correspondence. My conclusions on the evidence are therefore as follows:
1. In December 1984 the defendant firm held an auction for the sale of a licensed premises situated in Athboy, Co. Meath which was then known as ‘Farrells’ or ‘the Central Bar’. It was a small two-storey premises with living accommodation. The premises were held under a lease dated 31 July 1959 for a term of 31 years from 13 November 1958 at a yearly rent of £80. Thus there was a serious infirmity in the title — the lease would expire within about five years, but under the existing law the lessee would have been entitled to a renewal on expiration, but at the market (and therefore greatly increased) rent then prevailing.
2. The plaintiffs were most anxious to buy the premises, partly as a residence for their family, (for they were then living with Mrs McAnarney’s mother at the time with their four young children) and partly as a business venture. The premises were offered for sale without any accounts as to turnover or profitability. Before attending the auction the plaintiffs had obtained particulars of the premises and a promise of financial accommodation for £35,000 from a financial institution. They also had approximately £8,000 — £10,000 available to add from property in Northern Ireland.
3. The plaintiffs were late for the auction on 4 December 1984, arriving with their solicitor, Mr Binchy, at the offices of the defendant firm when the auction was over. They were brought into the offices by Mr Hanrahan who told them that there had been a bid at the auction of £54,000 and that the property had then been withdrawn. In fact this information was not true — there had been no such bid at the auction. He asked them to bid £55,000. The plaintiffs said that they would be prepared to make an offer of £55,000 if they could get an increase in their loan facilities. In the course of conversation leading up to this offer Mr Hanrahan referred to the short remaining term of the lease. He informed them that there had been negotiations with the ground landlords about the purchase of the freehold and he told the plaintiffs and Mr Binchy not to worry as the freehold could be purchased for £3,000 or perhaps less. This was not true — there had been no negotiations about the purchase of the freehold and the landlords had not at that time or any time previously been asked to indicate the price at which the freehold could be purchased. Mr Hanrahan was basing his statements on the fact that the principal of the firm, Mr Potterton, had previously negotiated with the landlords in respect of other premises and had done so on *213 terms he considered favourable.
4. The representations were made by Mr Hanrahan, and not by Mr Potterton. He made them for the purpose of inducing the plaintiffs to purchase the premises. Whilst the plaintiffs undoubtedly were anxious to purchase the premises I think that the information concerning the purchase of the freehold materially induced their final decision to purchase at a price higher than that which they originally were prepared to bid.
5. The plaintiffs failed to obtain an increase in their financial accommodation. They could only make an offer of £50,000, which the defendant firm accepted. On 21 December 1984 the plaintiffs again returned to Athboy and signed a proposal to purchase. The agreed price for the premises was £45,000 and £5,000 for the furniture and fittings. Prior to signing the proposal form Mr Hanrahan again assured the plaintiffs that they could probably purchase the freehold for £3,000.
6. The contract for sale is dated 8 January 1985. It contained no contractual obligation on the vendor in relation to the freehold.
7. The plaintiffs duly went into occupation. They paid the contract price of £45,000 but not the sum of £5,000 (which was left outstanding on a promissory note). They made no effort to purchase the freehold as they were not in a financial position to do so. They got into serious financial difficulties after about 18 months and in 1986 they then decided to attempt to sell the property. For this purpose they were advised to purchase the freehold. They then discovered that the landlords’ price for the freehold was £40,000. In 1988 they instructed their solicitors to write claiming damages against the defendants. Shortly afterwards these proceedings were instituted.
The law
The plaintiffs do not maintain a claim for damages for deceit — their claim is for damages for negligence. It is claimed that Mr Hanrahan owed a duty of care to them and that this duty was breached and in support they rely on the principle established in Hedley Byrne and Co. Ltd v. Heller & Partners Ltd [1964] AC 465. It is important to bear in mind that this is not a case in which a party to a contract (or his agent) has made a negligent misstatement to another — it is a case of an auctioneer acting for a vendor making a statement to a proposed purchaser. The question for determination is whether in the particular circumstances the auctioneer owed a duty of care to the purchasers. As pointed out in Hedley Byrne by Lord Morris at pp. 502–503:
If, in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful enquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, would place reliance upon it, then a duty of care will arise.
*214
Here Mr Hanrahan took upon himself responsibility for giving his opinion about the purchase of the freehold. He should have known that the plaintiffs would place reliance on what he told them, particularly as he expressly stated that negotiations had already taken place with the landlords. In my opinion a special relationship thus arose between Mr Hanrahan and the plaintiffs which imposed on him the duty of care in giving the information. He breached that duty in that before making the statement he took no care to see what price the landlords would require for their interest. This case is different to that of Bank of Ireland v. Smith [1966] IR 646 in which Kenny J held that no duty of care towards prospective purchasers was imposed on an auctioneer when placing an advertisement which contained misleading information. In this case the particular circumstances of the negotiations and the express assumption of responsibility to which I have referred created a special relationship which was absent in the circumstances which Kenny J was considering.
It follows, therefore, that if the plaintiffs can establish loss arising from the negligent misstatement that damages are recoverable against Mr Hanrahan personally and against his employers, the second named defendants, who are vicariously liable for his negligence.
Damages
The plaintiff claims damages under three headings (a) £27,000 being the difference between the represented price of the freehold and its eventual cost, (b) £15,000 spent on refurbishing the premises and (c) general damages for mental distress.
As to (a) the facts relevant to this claim are as follows. The plaintiffs took no step to purchase the freehold after they obtained the assignment of the lease because they were in no financial position to do so. Out of the business takings they raised £15,000 needed for refurbishing the premises but they had not enough cash available to meet the commitment to pay the £5,000 due on the promissory note (this sum was never, in fact, paid). The business was carried on successfully only for a limited period of about 18 months — thereafter it failed virtually completely and in 1986 the plaintiffs decided to sell the premises. When enquiries were made they found that the landlords were looking for £40,000 for their interest in the premises, a sum which the plaintiffs had no possibility of paying. They remained in the premises and paid no rent after the lease expired and were unable to make any payments to their bankers and eventually they owed them £61,000 approximately. After these proceedings were instituted in 1988 the plaintiffs remained in possession but by 1991 their fortunes changed. The bankers agreed to write down their debt to £21,000, and the plaintiffs were able to negotiate the purchase of the freehold in May 1991 for £30,000 and able to sell the premises with the benefit of the freehold in October 1991 for £80,000. Thus they were able eventually to make a substantial *215 profit on the transaction.
What now falls for consideration is the correct way in which damages should be assessed in a case of negligent misrepresentation.
Damages in such cases are assessed by analogy with claims for damages for deceit. Where damages are claimed for fraudulent misrepresentation then they are assessed so as to put the plaintiff in the position he would have been in if the representation had not been made to him. This is different to the case where damages are being assessed in the case of a claim based on breach of warranty — then damages are assessed on the basis that the warranty was true. So, in the case of a sale of shares induced by fraudulent misrepresentation the normal measure of damages is the purchase price of the shares less their actual value at the time of acquisition (see McGregor on Damages , 15th ed., paragraphs 1718, 1724, and 1939) and in a case like the present one, where a plaintiff has been induced to enter into a contract for the purchase of land by a misrepresentation negligently made the normal measure of damages is the price paid for the land less its actual value at the time of sale. This means that damages are not assessed on the basis as urged on the plaintiff’s behalf that he lost a bargain for the purchase of the freehold at £3,000 and should be compensated by a payment of £27,000, being the difference between the price of the freehold (£30,000) and the sum referred to in the misrepresentation. Instead, damages must be assessed on the difference between the price actually paid for the premises (£45,000) and the actual market value of the premises (that is the premises with the infirm title to which I have referred) at the time of sale.
In cases where a client sues his own solicitor or valuer for damages for advice negligently given in relation to the purchase of property the principle which I am applying in this case is also applied. Ford v. White & Co. [1964] 1 WLR 885 is an example of the operation of this measure of damages. That was a case in which the plaintiff had negotiated for the purchase of land. The land was subject to a restriction on its development and the offered price reflected this fact. The plaintiff’s solicitors, however, negligently advised the plaintiffs that the land was not so restricted and acting on that advice the plaintiffs purchased it at the price originally asked. In an action for damages for negligence against his solicitors the plaintiffs contended that the plaintiffs were entitled to be placed in the same position as if the property were indeed free from building restrictions and claimed that the measure of damages was the difference between the market value at the date of the sale subject to restrictions and its market value free from those restrictions. This argument was rejected and the court held that the proper measure of damages was the difference between the market value and the price actually paid. In that case, as the plaintiff had acquired property equal in value to the price paid for it, they had suffered no damage.
The onus is on the plaintiffs to prove their loss. They have adduced no expert evidence of the market value of the premises at the date of sale and the evidence *216 of the auctioneer, Mr Heffernan called on their behalf, was directed to a different aspect of the case. As I do not accept that there were any genuine bids at the auction I cannot rely on the evidence of what happened at the auction to establish the market value of the premises. There was, however, some evidence on which this fact could be established with reasonable accuracy. Before the auction and before any misrepresentation had been made a financial institution was prepared to lend £35,000 to the plaintiffs on the existing (defective) title. It is notorious that financial institutions do not lend 100% of the value of premises in circumstances like the present case and so it follows that the value placed on the premises by the financial institution must have been in excess of the sum to be lent. The plaintiffs evidence was to the effect that they had out of their own resources a limited sum available to add to the money to be borrowed. Whilst precise evidence of their intended offer has not been forthcoming it appears to me to have been in the region of £45,000 all-in as this was the limit of the finances available to them when the sale actually took place. In this case, I think I can reasonably take the price the plaintiffs were prepared to pay before the misrepresentation as representing the market value. This was a sum of £45,000 which included fixtures and fittings and as these were valued at £5,000 it seems to me that the market value of the premises was approximately £40,000. The plaintiffs loss under this heading is therefore £5,000, being the difference between the market value of the premises at the date of sale and the sum they actually paid for it.
In addition the plaintiffs have claimed £15,000 special damages being the cost of refurbishing the premises after they took possession of them. This sum was certainly spent but I do not think that it is recoverable as damages from the defendants as it was a sum which would have been spent in any event on the premises and is not a loss which had flowed from the negligent act complained of.
Finally, general damages for mental distress have also been claimed. Compensation for injury to feelings may be included in cases of fraud (see Doyle v. Olby (Ironmongers) Ltd [1969] 2 QB 158, 170) and in principle in suitable cases I think that damages for negligent misrepresentation in respect of mental distress caused to a plaintiff could be assessed. In the present case, however, I do not think that the distress caused by the defendants’ wrongdoing can be measured in any meaningful way and I do not think that the justice of the case requires damages to be increased under this heading.
There will therefore be a decree for £5,000.
Quinn Insurance Ltd (Under Administration) -v- PriceWaterhouseCoopers (A Firm)
[2017] IECA 94 (21 March 2017)
URL: http://www.bailii.org/ie/cases/IECA/2017/CA94.html
Cite as: [2017] IECA 94
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JUDGMENT of Mr. Justice Gerard Hogan delivered on the 21st day of March 2017
Part I
1. In April 2010 the High Court appointed administrators to Quinn Insurance Ltd. (“QIL”) pursuant to the provisions of s. 2 of the Insurance (No.2) Act 1983. In its time QIL was principally a motor and household insurance company, but it has since transpired that the extent of its insolvency is enormous: it has ceased to write any new business and at the hearing of the present appeal the Court was informed that the deficit between assets and liabilities is in the order of €1.6 billion. Certainly, to date the High Court has approved the drawing by QIL of sums of more than €1.2 billion from the Insurance Compensation Fund to meet the deficit between its assets and liabilities.
2. Since their appointment the administrators have sold the core business of QIL (including its insurance book) so that virtually the only remaining asset which QIL retains is the present action against its former auditors, Pricewaterhouse Cooper (“PwC”). For the years up 31st December 2005, 2006, 2007 and 2008 (“the material period”), PwC was the auditor of the plaintiff and reported on the plaintiff’s financial statements and separately on the plaintiff’s regulatory returns.
3. In 2012 the administrators of QIL commenced an action in the name of the company whereby it sued PwC for negligence, breach of contract and breach of duty in or about its auditing of the plaintiff’s books and records in the material period and separately in relation to its regulatory returns. The essence of the claim is that PwC ought to have known that the relevant financial statements and regulatory returns did not give the reported true and fair view of the state of the plaintiff’s affairs for each year of the material period. All are agreed that this action will be an enormous and complex case. If the matter should come to trial it might be expected that the hearing would last for more than twelve months with a claim for damages in the order of €800m. Some measure of the difficulties inherent in this mammoth litigation may be gleaned from the fact that the various notices for particulars raised to date and the replies to these particulars already cumulatively extend to more than 800 pages.
4. At the heart of the plaintiff’s claim against the defendant is the allegation that the former’s financial statements materially understated its liability for insurance claims or, to employ the widely-used industry term, the “technical provisions”. Despite the extensive pleading and counter-pleading on the part of the litigants, the litigation is nonetheless in its (relatively) early stages, since the pleadings have yet fully to close. In particular, discovery is yet awaited. This is likely to be a daunting process which might yet generate tens of millions of documents.
5. The issue which now comes before us relates to PwC’s motion in the High Court seeking an order pursuant to Ord. 19, r. 7 compelling the plaintiff to provide further particulars in relation to certain aspects of the claim relating to the allegation that the technical provisions were materially understated. In the High Court Costello J. made an order directing replies to a majority of the particulars sought (Quinn Insurance Ltd. (in administration) v. Pricewaterhouse Coopers [2015] IEHC 303), while refusing to direct the furnishing of other particulars. QIL has now appealed to this Court against that decision and there is also a cross-appeal by PwC in respect of her failure to direct certain particulars.
6. In the High Court the disputed particulars extended to some 23 pages. As it happens, only a minority of the particulars which were in dispute before the High Court remain outstanding in the wake of that judgment. This Court’s task has been accordingly made easier by the fact we can now focus on the more limited number of particulars – some 47 specific requests in all – which remain in dispute between the parties in respect of both the appeal and the cross-appeal.
7. While even the experienced legal practitioner might be taken aback that 47 individual requests still require to be adjudicated upon by an appellate court in respect of proceedings that are already four years old, this in its own way gives a further sense of the vast dimensions of this litigation. In fairness, however, counsel for PwC, Mr. Gleeson S.C., was unapologetic in respect of what he acknowledged was the fastidious nature of his client’s attitude to this feature of the pleading process. He insisted that against the backdrop of this hugely complex litigation a generous approach to the scope of particulars was required in order to corral the extent of the pleadings. The essence of the submission was that detailed particulars were required in respect of a vastly complex claim, as otherwise PwC would lack the capacity fairly to defend the claim and to know the essence of the case which it was now required to defend.
8. Counsel for QIL, Mr. Gallagher S.C., was equally robust in his submission to the effect that while this claim was admittedly complex, it had already been fully particularised following a detailed statement of claim and extensive replies to particulars. He submitted that PwC well understood the nature of the claim against it.
9. Before considering the details of the disputed particulars themselves, it may first be convenient to summarise the general legal principles which govern applications of this kind.
The applicable legal principles regarding particulars
10. The applicable principles regarding the delivery of particulars are not really in dispute and may be lightly summarised here. It is, of course, the application of these principles – not least in a case of formidable complexity such as the present one – which presents all the difficulties.
11. The starting point of the legal analysis is the well known dictum of FitzGerald J. in Mahon v. Celbridge Spinning Co. Ltd. [1967] I.R. 1, 3:-
“The whole purpose of a pleading, be it a statement of claim, defence or reply, is to define the issues between the parties, to confine the evidence at the trial to the matters relevant to those issues, and to ensure that the trial may proceed to judgment without either party being taken at a disadvantage by the introduction of matters not fairly to be ascertained from the pleadings. In other words a party should know in advance, in broad outline the case he will have to meet at the trial….”
12. This theme was taken up by Henchy J. in Cooney v. Browne [1985] I.R. 185, 191 a decision which remains, in many way, the leading Irish authority on the scope of particulars:-
“Where the particulars are sought for the purpose of the hearing, they should not be ordered unless they are necessary or desirable for the purpose of a fair hearing. “The object of particulars is to enable the party asking for them to know what case he has to meet at the trial, and so to save unnecessary expense, and avoid allowing parties to be taken by surprise”: Spedding v. Fitzpatrick (1888) 38 Ch. D. 410, at p. 413. Thus, where the pleading in question is so general or so imprecise that the other side cannot know what case he will have to meet at the trial, he should be entitled to such particulars as will inform him of the range of evidence (as distinct from any particular items of evidence) which he will have to deal with at the trial.”
13. This approach was well summarised by Dunne J. in Quinn Insurance Ltd. v. Tribune Newspapers plc [2009] IEHC 229 where she observed:-
“There is no doubt whatsoever that a party is entitled to know the nature of the case being made against them. However, the role of particulars is not to require a party to furnish detailed particulars of specific aspects of the case. It is sufficient that the issues between the parties should be adequately defined and that the parties should know in broad outline what is going to be said at the trial of the action.” (emphasis supplied)
14. The defendant also argued that the particulars sought were necessary in order to bring greater precision to the issues between the parties so that the discovery ultimately sought in this enormous and complex case might be reduced. Some of these difficulties were adverted to Clarke J. in Thema International Fund plc v. HSBC Institutional Trust Services (Ireland) [2010] IEHC 19:-
“It has been suggested in some quarters that the fact that, in the Commercial Court, parties are required, well prior to trial, to exchange statements setting out a précis of the evidence which any witness, whether of fact or expert, is due to give, coupled with the requirement to exchange written submissions on the legal issues which are likely to arise at the hearing, significantly reduces the need for a very high level of particularity at the pleading stage. There is, undoubtedly, some truth in that proposition. One point of pleadings (and a very important aspect of same in cases where there is not likely to be a pre-trial exchange of witness statements and submissions) is to define with some precision the questions which are likely to arise at the trial so that the parties can not be prejudiced by being taken by surprise. Clearly in circumstances where witness statements and written submissions have to be exchanged, the extent to which a party could reasonably be taken by surprise at trial is significantly reduced. However, there is another important function which pleadings play, particularly in cases where significant discovery is likely to follow.”
15. While Clarke J. accepted that the Commercial Court requirements regarding the exchange of witness statements tended to mitigate against any possible surprise, he also adverted to the fact that a loosely or laxly pleaded case carried its own dangers regarding the scope and breadth of discovery in the proceedings:
“…overly broad discovery carries with it the risk that in virtually every case, the costs of the proceedings will be increased for no gain in terms of the likely justice in the vast majority of cases, so that whatever party has to bear the burden of paying for that discovery (normally the loosing party), will bear a larger burden than might otherwise have been the case. The injustice, to at least one party in virtually every case, that would arise in those circumstances is obvious…..To enable a party to move to discovery without having adequately pleaded its case is to run the risk of a significant injustice by virtue of that party being allowed to trawl through the other side’s often confidential information without real justification. On the other hand, to require a party to plead at a level of detail (in advance of discovery or the like) which it could not reasonably obtain other than by discovery or other procedural steps can lead to an obvious injustice. A balance again needs to be struck.”
16. A further factor is that identified by Baker J. in her own judgment in Playboy Enterprises International Inc. v. Entertainment Media Network Works Ltd. [2015] IEHC 10, namely, that, generally speaking, the more complex the proceedings and the pleadings, the greater will be the need in the interests of the efficient use of court time and resources to ensure that the case is fully pleaded. This in turn suggests that the role of particulars in complex litigation is more expansive than in the case of more routine cases.
17. These were the general principles identified by Costello J. in her judgment and, as I have already indicated, they are not really in dispute. It is the application of these principles to the disputed particulars which has given rise to the present application to the High Court and the subsequent appeal to this Court.
18. Before proceeding further, it may be helpful if I indicate the format of the remainder of the judgment. I propose first to examine the disputed particulars by reference to subject areas by setting out the general background to the proceedings, then summarising the High Court judgment. I will then proceed to examine whether the relevant aspect of the High Court judgment should be upheld, taking first the particulars which are the subject of QIL’s appeal and then proceeding to consider PwC’s cross-appeal in respect of those particulars refused by the High Court.
Part II: The Background to the Proceedings
Technical Provisions
19. As an insurance company, the plaintiff had an obligation to make provision for the future cost of claims in its annual accounts. It was, of course, impossible to be precise in relation to the size of these claims, but the gist of the allegation against PwC is that in respect of the material period, the technical provisions were very seriously understated. The plaintiff contends that the defendant was negligent in respect of these provisioning estimates and it seeks to hold it responsible for the enormous losses it has suffered as a result of serious under-provisioning for claims.
20. During its time as auditor of QIL, PwC was engaged by the plaintiff to audit the financial statements prepared by QIL and to audit the statutory forms of QIL’s annual returns to the Financial Regulator. These financial statements naturally included the appropriate estimates in respect of the technical provisions. While there is really little in dispute between the parties concerning the nature of the technical provisions, the nature of the provisioning obligation was helpfully explained by Mr. Tony Weldon of PwC in his affidavit of 3rd March 2015:-
“Very simply, an estimate of claims reserves is included in the financial statements and regulatory returns of any insurance company. This estimation of the required claims reserves is an estimate only and can obviously include allowance for thousands of claims, all with various unknown and known variables and all at different stages of progression. Estimating the technical provisions is an inherently uncertain exercise, which is heavily dependent on the exercise of professional judgment. The question that arises is whether an estimation falls within a reasonable range and auditing guidance generally emphasises that it is only if the estimate falls outside a reasonable range that a misstatement can be regarded as having arisen. The exercise of estimating appropriate claims reserves is particularly complex for what are described as “long-tail” insurance claims, which formed a significant proportion of the plaintiff’s outstanding claims. These are insurance claims which do not proceed to final settlement until a length of time beyond the policy year and indeed, potentially years after the expiration of the policy in question…
Information regarding the claims incurred with long-tail insurance emerges over time and accordingly there is a high degree of estimation. The nature of the legal process involved in settling claims also means that there can be large changes in the outcome of estimates, such as where the attribution of liability to one side or the other changes. When changes in the external environment are factored in as well, the consequence is that there is a high degree of uncertainty…
There are a number of methodologies that can be used by actuaries to estimate claim reserves, such as extrapolation from past claims data for a company, with respect to both paid claims and incurred claims which have not yet been paid. It is also possible to apply a loss-ratio method based on premiums and to combine a number of different methodologies….
In each year of the material period, the plaintiff engaged Milliman Advisers Limited (“Milliman”), a highly reputable actuarial firm, to provide an estimate of its Technical Provisions.
In general, the most material and complex judgment affecting the annual regulatory returns for a non-life insurer is the adequacy of its booked technical provisions. In order to obtain additional confidence in the adequacy of the booked technical provisions, a key requirement imposed on authorised non-life insurers is that the adequacy of the booked technical provisions is supported by a Statement of Actuarial Opinion (“SAO”) signed by an appropriately qualified actuary.”
21. At para. 31 of that affidavit Mr. Weldon went on to explain:
“Accordingly, the ultimate estimates are dependent on the following:
(1) The appropriateness of the key data inputs;
(2) The selection of appropriate assumptions and actuarial methods to apply to such input data; and
(3) The appropriateness of the conclusions drawn by the actuary from the application of each method and/or the combining of the results of different methods.”
22. The directors of QIL were, accordingly, under an annual obligation to prepare an estimate of the technical provisions. Somewhat unusually, however, the plaintiff did not employ in-house actuaries, but it instead relied upon the expertise of Milliman Advisers Ltd. (“Milliman”). (Milliman is a US-based international actuarial and consulting firm.) It was Milliman who assisted QIL in the preparation of the technical provisions. To this end Milliman relied upon the data furnished by QIL but exercised its own independent professional judgment in assessing the data and selecting the appropriate methodologies to apply in these circumstances.
23. It is accepted that PwC was obliged to audit this figure as part of the overall audit of the business of the plaintiff. For this purpose PwC availed of the actuarial expertise supplied by a specialist branch of its own organisation. PwC AIMS. The role of PwC was, however, to audit the financial records of QIL, not to audit the work of Milliman. This actuarial exercise naturally required the exercise of a considerable degree of professional judgment in calculating the technical provisions. The final overall estimate of technical provisions will accordingly depend to some extent upon what Costello J. aptly described as “the actuarial methodologies used, a variety of data sources and inputs, the assumption applied and the professional judgment of the actuary.” In her judgment Costello J. also acknowledged that:
“It is also common case that there may legitimately be a range of results based on the same data, depending on the methodologies used and the individual judgment and professional expertise employed by the actuary conducting the estimate. It is only if the figure estimated for the technical provisions materially underestimates and therefore is considerably outside the accepted range that it could be considered to be wrong.”
24. As the claims materialised following the appointment of the administrators, they were concerned there had been significant under-provisioning in respect of the claims in the previous years. The administrators accordingly instructed the well known professional services firm, Mazars, to re-estimate the technical provisions for the years 2005 to 2008. In their re-estimation exercise Mazars concluded that the original estimates were materially under-estimated in a manner so far outside of a range of reasonable estimates that they could not have been conducted properly in accordance with the appropriate and relevant professional standards.
25. Two critical aspects of the Mazars exercise should be noted at this juncture. First, Mazars had not been supplied with the audit working papers of PwC, so that it was unable to determine the extent to which any of the relevant factors which might impact on the likely level of technical provisions (such as – to take only the most obvious example – estimates of likely claims costs) had in fact been taken into account by PwC during the periods in question.
26. Second, Mazars performed this re-estimation exercise in the round and, specifically, did not seek to attribute a particular value to a particular loss. Accordingly, rather than make an estimate on an item by item basis, Mazars arrived at a global figure which it maintains represents PwC’s under-estimates of the level of technical provisions for which QIL should properly have made provision.
27. A key part of QIL’s case is that if PwC had drawn attention to this level of under-provisioning, then this would have had the effect of obliging the company to increase these reserves significantly. One consequence of this, for example, would have been that QIL would not have been in a position to make substantial gifts (in the order of €175m.) to related companies in the Quinn Group of companies. It would also have been obliged to address its business model, thus obliging the company to adjust its prices or, alternatively, to exit from certain unprofitable lines of business, particularly insurance written in various UK markets. The administrators maintain that actions such as this would have helped it to avoid the catastrophic underwriting losses which it ultimately incurred.
Re-opened claims
28. Another issue forming part of the backdrop to the present proceedings is the contention that there were a large number of re-opened claims. QIL maintains that had this factor been identified it would have been a tangible signal that the underlying claims model which it had employed was not working effectively. As Costello J. put it in her judgment:
“The sheer number of reopened files raised significant issues about the reliability of the approach to claims and claims reserves. Further, the number was far greater than the industry norm which should have alerted the defendant to the frailty of the data. It would affect the professional judgment employed in assessing the estimates. It is said that the scale of the reopened claims during the material period required an appropriate adjustment which would have required a material increase to the level of claims reserves required and it is said the defendant negligently failed to identify this issue.”
29. The plaintiff’s case on this point is that the sheer volume of re-opened cases should itself have sent a warning sign to PwC – which was not heeded – that all was not well with QIL’s general modus operandi.
Part III: The judgment of the High Court
The judgment of the High Court
30. It is next necessary to consider the judgment of Costello J. The first set of disputed particulars related to the calculation of the technical provisions. The judge then explained the range of the particulars sought in relation to the technical provisions:
“The particulars sought in relation to the calculation of the Technical Provisions fall broadly into two categories. In simple terms, the defendant needs to know why, according to the plaintiff, the estimates as calculated by the plaintiff and Milliman for the relevant years in the material period where wrong and materially underestimated the technical provisions. Secondly, it seeks to know the details of the Mazars re-estimation of the technical provisions so that it can understand how Mazars approached the exercise, understand the data used, the methodology employed and the assumptions and professional judgments which the plaintiff will say at trial were the appropriate ones in all the circumstances. The plaintiff has objected to providing the particulars on the basis that the defendant understands and knows the case it has to meet and that the particulars sought amount to an inappropriate interrogation of evidence including expert evidence which will be adduced at the trial of the action. Its counsel submits that the statement of claim and the particulars delivered set out very fully the plaintiff’s case against the defendant.”
31. Costello J. acknowledged that QIL had already set out in great detail the particular of alleged negligence and breach of contract on the part of PwC. She nonetheless considered that it was not clear:
“…from either the pleadings or the particulars furnished to date precisely what the plaintiff says was wrong with the technical provisions as calculated by the plaintiff and Milliman in the material period. It is common case that the plaintiff will first have to establish that these estimates were materially underestimated. In order for the defendant fairly to meet this case, I am of the opinion that it needs particulars of why the plaintiff alleges the technical provisions were in fact materially underestimated. On the other hand, I do not believe that the defendant is entitled to particulars of how Mazars conducted the re-estimate of the technical provisions in preparation for this case. The plaintiff’s case is not advanced upon a direct comparison between the Mazars exercise and the exercise previously carried out by the plaintiff and Milliman. It follows that the requested particulars do not in fact arise out of the plaintiff’s claim and therefore do not relate to the issues in the case. Clearly they relate to the evidence which the plaintiff will lead at trial. However, it is well established and the authorities are clear that a party is not entitled to its opponent’s evidence by way of particulars of the claim or defence.
Furthermore, the plaintiff says that it has not in fact conducted the exercise of comparing the differences between the Mazars calculation with the Milliman calculation in the manner contended for by the defendant. It says it simply does not have the information in the format requested by the defendant in its notice for particulars. In order to answer the questions actually posed by the defendant in relation to these matters, it would have to carry out a further analysis and calculations which it has not done and which do not form part of its case against the defendant. This is a further reason for refusing these requests for discovery.
Thirdly, the parties are agreed that there is a range of possible estimates that might legitimately be made in calculating the technical provisions. Therefore, while the Mazars re-estimation is relevant to the plaintiff’s allegation that the original estimation of the reserves was wrong it is not the plaintiff’s case that the Mazars re-estimate of the technical provisions is the only correct estimate of the provisions. It will be perfectly possible for another actuary to re-estimate the reserves for the material period, taking account of the errors alleged by the plaintiff to have arisen, and bona fide to arrive at different values and ultimately at a different estimate for the technical provisions. Provided appropriate account is taken the relevant factors and there is appropriate professional expertise and judgment employed in preparing the estimates, it could legitimately be argued that this further re-estimation is as valid as that conducted by Mazars. It follows that the exercise carried out by Mazars is truly a matter of evidence which ultimately will be subject of expert reports and cross-examination rather than particulars of the plaintiff’s claim against the defendant.”
32. Costello J. accordingly directed QIL to reply to a specific range of particulars relating:
“….to the re-estimation of the technical provisions by Mazars rather than identifying the alleged errors in the estimates actually carried out during the material period, or they seek to identify the differences between the original estimation and the re-estimation. The question of comparing the calculation with the exercise carried out by Mazars does not arise out of the plaintiff’s claim and therefore is not in the circumstances an appropriate matter for particulars. Insofar as they seek to identify standards or contemporaneous information and data that Mazars relied upon when re-estimating the provisions, when identifying the errors alleged to have occurred in the original exercise, particulars of available data or information which was not considered or to which insufficient weight was paid will be identified as will the actuarial standards insofar as they were not or not appropriately applied.”
33. It is against this background that I now propose to move to a consideration of the individual particulars (or, in some instances, groups of particulars) which remain in dispute between the parties and are the subject of either an appeal or cross-appeal, as they may be.
Part IV: QIL’s appeal
The particulars sought in relation to the alleged under-provisioning of the technical provisions: Paragraph 11(3) II, V, VIII and XI
34. By a second notice for further and better particulars delivered on 18th December 2014 PwC sought details of the alleged under-provision in respect of the technical provisions for the calendar years 2005, 2006, 2007 and 2008. As each of the particulars sought for these years were in identical terms, I propose to treat the particulars (paragraph 11(3) II)) sought in respect of calendar year 2005 as representative for this purpose:
“In respect of the alleged understatement of each accident year within each class within each geographic region at 31 December 2005, please specify the reasons and the financial effect of each reason for the alleged understatement identified by the plaintiff in its re-estimation of the plaintiff’s technical provisions.”
Reply
“The plaintiff’s case has been adequately pleaded. This is an inappropriate interrogation as to matters properly for evidence, including expert evidence, at the trial of the action.”
35. As Costello J. found – and it is not really disputed – QIL have already provided extensive particulars of losses which it claims to have suffered. Thus, in a reply to particulars delivered on 24 June 2014, QIL has provided elaborate details and comparisons of the original Milliman/QIL estimates and the subsequent Mazars re-estimations for each of the years in which PwC acted as auditors, commencing with 2005. These estimates range from private motor and commercial motor estimates for this State through to estimates for property damage in Great Britain. The particulars then supply a detailed estimate and re-estimate under 14 separate headings of insurance business written by QIL during this period, along with total estimate comparisons. Based on this exercise QIL estimate that the deficit in provisioning was (with rounding) €167m. in 2005, €331m. in 2006, €579m. in 2007 and €671m. in 2008.
36. The defendant maintains that this detail – impressive though it is – is insufficient. It contends that it is entitled to know via this request for particulars both (i) the reasons for and (ii) the financial effect of each reason for the alleged under-statement identified by QIL. In essence, therefore, this request is that the plaintiff supply the defendant with reasons as to why it contends that the defendant was negligent.
37. PwC has, of course, also sought further particulars regarding the savings which QIL maintained would or, at least, might have been achieved had it been aware of the extent of the underwriting losses. In her judgment Costello J. addressed the question of PwC’s entitlement to further particulars by saying:
“In my opinion the defendant does not have sufficient information to understand the issues in relation to causation as set out in the replies to particulars of the 22nd October 2014, in relation to this aspect of the case. It is entitled to know how the plaintiff says it would have adjusted its pricing model, how it would have increased its rates on loss making lines, what were those loss making lines, what precisely would have been the effect of exiting the GB/NI in either 2006, 2007 or 2008.”
38. In my judgment, however, viewing the matter both from the standpoint both of practice and existing authority it would be hard to see how requests of this kind could be accommodated within the ordinary parameters of a notice for particulars. The pleader in a standard personal injuries action is not required, for example, to explain why the driver of the motor vehicle which caused the crash was driving too fast or why he failed to keep a proper look-out immediately prior to the accident. The gist of such a claim, after all, is that the defendant was in fact negligent by driving too quickly and by failing to keep a proper look-out. While it is true that, as I have already noted, Baker J. observed in Playboy Enterprises that the scope and range of admissible particulars in complex commercial litigation is naturally more extensive and broad-ranging than in straightforward personal injury actions, the general principle to which I have adverted nonetheless holds true.
39. One is driven to the same conclusion if the matter is viewed following a consideration of the authorities. The particulars already supplied in relation to the claim enable PwC to know, adopting Fitzgerald J.’s classic formulation in Mahon v. Celbridge Spinning Co. Ltd. [1967] 1.R. 1, 3, the broad outline of the case it will have to meet at trial. It knows with precision the extent to which under-provision was allegedly made in respect of the technical reserves for each relevant year and how it is said to have been negligent in this respect.
40. Counsel for PwC, Mr. Gleeson S.C., pressed the Court for these particulars on the grounds that, given the multiplicity of possible variables relating to the alleged under-provision, his clients were entitled to know – at least in general terms – the major causal factors which the plaintiff contends were responsible for the alleged under-provision. Given the complexity of the claim, he submitted, the plaintiff was entitled to know what factors or issues the defendant says it ought to have noticed in the course of the audit but that it somehow missed.
41. The most straightforward answer to this submission is to recall that the purpose of pleadings is to define the issues between the parties and that the purpose of particulars is in turn to clarify more precisely the parameters of the pleadings. Here QIL have defined the extent and scope of the claim in respect of the alleged under-provision in, it must be said, elaborate detail for each of the relevant years.
42. To go further is effectively to require the other party either to identify items of evidence which it proposes to lead or to provide something in the nature of a factual narrative in support of the claim. Our system of civil procedure certainly provides instances (such as judicial review proceedings and, more latterly, in defamation claims) where a plaintiff is required to provide a grounding narrative by way of affidavit in support of the claim at the outset of the proceedings. Rightly or wrongly, there is no such requirement in the case of private law actions commenced by way of plenary summons (such as the present case) and the authorities have consistently rejected the contention that a defendant is entitled to such information by way of particulars: see, for example, the comments of Henchy J. in Cooney and my own judgment as a judge of the High Court in Armstrong v. Moffatt [2013] IEHC 148, [2013] 1 I.R. 417.
Conclusions regarding particulars in relation to the alleged underprovisioning of the technical provisions
43. It is for these reasons that I respectfully disagree with the conclusions of Costello J. in this respect. I would accordingly allow QIL’s appeal against orders directing to answer the following particulars arising out of paragraph 17 of the statement of claim contained in paragraph 11(3) of the notice for particulars delivered on 15th November 2013, namely, 11(3) II, V, VIII and XI, these being particulars in relation to the reasons for the alleged under-provisioning in the years from 2005 to 2008 in respect of the technical provisions.
Particulars 11(3) XIII F and G: Details regarding contemporaneous information and data
44. A related request is No. 11(3)XIII F whereby PwC sought details of the precise “contemporaneous information and data” which it is alleged was available at the time
“….and in accordance with which the original estimation carried out by the plaintiff and/or Milliman of the plaintiff’s ultimate net costs as of 31st December in that year for the purpose of preparing the plaintiff’s financial statements and regulatory returns, ought to have been, but was not, carried out.”
45. Particular No. 11(3)XIII G is expressed in very similar terms.
46. In my view, Costello J. was correct to direct QIL to provide such particulars. Knowing the range of information and data to which it is said PwC ought to have had regard at the time of the audit is so integral to the claim of professional negligence that this is information to which, as a matter of basic fairness of procedures, it should be entitled. While the distinction articulated by Henchy J. in Cooney between the range of evidence on the one hand (to which information the opposing party is entitled by way of particulars) and distinct items of evidence (to which it is not), is not always the easiest to apply in practice, I consider that this specific information is important to enable PwC fairly to meet the case against it.
47. This conclusion should not, however, be misunderstood. It will be sufficient for this purpose if QIL provides by way of reply a broad outline the range of such information and data. It may be supposed that a succinct statement of the material to which QIL says PwC ought to have had regard in conducting its audits should suffice for this purpose.
Conclusions
48. I would uphold the decision of the High Court in respect of particulars 11(3)XIII F and G.
Details of alleged avoidable underwriting losses
49. By particulars No. 21(12)II A, B and C PwC have effectively sought details in respect of the underwriting losses for each of the financial years from 2007 to 2010 which it is alleged “could or would have been avoided” but for the alleged failures of PwC. To that end QIL were further requested to supply:-
“II. Arising from each of the examples set out in Reply 21(12) of the 22 October 2014 Replies under B and C, in respect of the underwriting losses in each of the financial years ended 31 December 2007 to 2010 inclusive, which it is alleged could or would have been avoided but for the alleged failures of the Defendant, please provide, preferably in tabular format and with monetary amounts:-
A. A breakdown of each of the constituent elements making up the net underwriting loss in each year into categories including premiums earned, claims incurred, claims handling expenses, commission expense, operating expense, foreign exchange gains or losses and any investment return included in the net loss.
This is a matter for evidence, including expert evidence, and is not a proper matter for particulars. Without prejudice to the foregoing this breakdown will be provided in due course as is averred to above in the narrative to these replies under the heading “Underwriting Losses.”
B. A breakdown of each of the constituent elements making up the net underwriting loss in II A above separately into each class of business within each geographic region.
Please refer to the reply to Rejoinder II A above.
C. A breakdown of the figure of asserted savings as between costs savings, avoidable substantial underwriting losses, gifts and loans.
Please refer to the reply to Rejoinder II A above.”
50. In any consideration of this question it is first necessary to observe that the Mazars did not seek to attribute a value to each of the relevant factors which it had identified in the course of its re-estimation exercise. In other words, while, for example, Mazars had identified gifts and loans which QIL had made to Quinn-related companies during this period which it said would not have been made had it been aware of the extent to which it had under-provisioned in respect of its contingent claims liabilities, no specific value had been attributed to each of these items.
51. The rationale for this approach was explained thus by Mr. Andrew Goldsworthy, who is the audit and assurance service line leader for Mazars UK (at para. 22 of his affidavit of 31st March 2015):
“At each of the relevant year ends, the best estimate of the technical provisions calculated by Mazars is greater than the technical provisions included in the plaintiff’s financial statements. In determining our best estimate, it is important to stress that our projections do not attribute a value to each relevant factor, In accordance with extant actuarial practice (which is still the case), these factors are addressed in the round in determining the technical provisions necessary, rather than on an item by item basis. The relevant factors considered together informed the actuarial assumptions and judgments made in calculating the best estimate…”
52. In any event, these further particulars effectively seek a detailed breakdown of the claim into what amounts to a line item analysis of key aspects of its constituent parts. In my view, this goes well beyond seeking to ascertain the parameters of the claim, but rather seeks in substance what would amount to a précis of the evidence (even if, admittedly, in figures and in tabular form) of the evidence to be given against. Any such reply to these requests for particulars would, in reality, be a form of narrative of the details of the claim, even if expressed principally in figures as distinct from words. For the all reasons expressed by me in a judgment delivered as a judge of the High Court in Armstrong v. Moffatt, I consider that such requests venture beyond the proper scope of a notice for particulars and must be disallowed.
Conclusions
53. I would allow QIL’s appeal as against the order of the High Court which directed it to answer particulars Nos. 21(12)II A, B and C.
Details as costs savings: Particulars 21(12) VII A, B and D
54. By particulars 21(12)VII A, B and D arising from the notice for particulars delivered on 18th December 2014 PwC has also sought details as to the costs savings which QIL contends it would have achieved had it been alerted to the extent of the under-provisioning. By particular 21(12)VII A PwC seek to inquire how it is asserted that the plaintiff would have adjusted its pricing model by reference to each underwriting or accident year “in respect of each class of business within each geographical region.” This request for particulars is, however, against a background against a claim by QIL that had it received forewarning from its auditors that it had materially under-provisioned it would have taken a range of remedial steps, including adjusting its prices and discontinuing certain loss-making businesses.
55. In my view, the particulars sought as to how QIL would have adjusted its pricing models in the various classes of business and within each geographical region go beyond the range of evidence to which it is entitled and amount to interrogatories directed at the specific details of an expert report which might be tendered at trial. I would therefore allow QIL’s appeal against the High Court order that it answer these particulars.
56. PwC also sought particulars (21(12)VII B) of each class of the loss-making business “within each geographic region by accident year” to which reference is made. I think that PwC are entitled to know in general terms the identity of loss-making business for each relevant underwriting year so that it can ascertain from the pleadings the nature of the claim and the range of evidence that will be led in support of this claim. I see no reason why this particular could not be replied to in summary form by reference to the general classes of loss-making business in each underwriting year.
57. In passing, I would also note that particular 21(12) I B contains a similar, overlapping request for the details of each class of loss-making business “within each geographic region by accident year to which reference is made.” In essence, the further detail sought is the geographic region in which any loss-making business is said to operate. I do not see that this additional detail is critical so far as this claim is concerned. Once QIL provides details of the general classes of loss-making business in each underwriting year (as it has just been required to provide), this will be sufficient for PwC to knew in broad terms the case it has to meet. I would accordingly allow QIL’s appeal in respect of the order to furnish an answer to this request for particulars.
58. The final request under this heading was a request (21(12)VII D) that QIL specify by reference to each class of alleged loss-making business “how it is asserted [that] underwriting losses of approximately €490m. would have been avoided.” It is important to stress that QIL have already pleaded (in admittedly more general terms than PwC would wish) that had it been aware of the alleged under-provisioning it would have taken steps such as ceasing to make gifts to related Quinn companies, discontinuing loss-making business and increasing prices. In these circumstances, for PwC to go further in order to seek the details by reference to each class of business is effectively seeking to interrogate QIL as to details of the evidence it proposes to lead at trial. In these respects PwC knows the substance of the case it will have to meet at trial and doubts in this regarded may be assuaged by the fact that, as I have just indicated, QIL will have to answer particulars directed at identifying the loss-making business.
Conclusions as particulars 21(12)VII A, B and D
59. I would therefore affirm the decision of the High Court in respect of the particulars sought at 21(12) VII B, but otherwise allow the appeal in respect of particulars 21(12)VII A and D and IXA, B and D.
Further particulars in relation to cost-saving measures: particulars 21(12) X A, C, D, E, XI A, C, D, E and F
60. It remains under this heading to consider yet further particulars seeking details regarding the alleged cost saving measures which QIL would have taken. Many of these requests overlap with earlier requests and in some instances are phrased almost identically to earlier requests. Some of the requests are effectively determined by specific rulings which are contained in earlier parts of this judgment, while other requests require more detailed treatment.
Details of substantial cost savings: Particulars 21(12) X A and F, XI A, XI F and XVB, XVI A and XVIIA.
61. The request at 21(2)X A seeks to elicit details of the “substantial cost savings” which it is asserted “would have been generated as a result of the plaintiff exiting the Great Britain and Northern Irish business.” Given that the contention that there would have been substantial cost savings had QIL been alerted to the extent of the under-provisioning is central to its claim, I consider that PWC are entitled to know in broad outline the details of the savings which it is said the exiting of these markets would have generated. I would therefore affirm the decision of the High Court in this respect of this particular.
62. This decision also governs the very similar requests in 21(12) X F, 21(12) X A, XF, XV B, XVI A and XVII A.
Increased rates on loss-making business: Particulars 21(12) X D and XI C
63. The contained in Particular 21(12) X D requests QIL to specify:-
“…by reference to each underwriting year or accident year (as appropriate) in respect of each class of business within each geographical region, how it is asserted the plaintiff would have increased the rates on ‘loss-making lines of business, thus avoiding substantial underwriting losses on business written by it.”
64. This is another example of a request which goes beyond the range of evidence test articulated by Henchy J. in Cooney. As I have indicated elsewhere in this judgment, PwC is entitled, of course, to know in broad terms the general nature of cost-saving measures which QIL contends it would have adopted had it been aware of the under-provisioning deficits. It is also entitled to learn via particulars that one of the proposed measures would have been the adjustment of the pricing model by QIL.
65. The extent to which QIL would have adjusted its prices is, however, an entirely different matter. This request reaches deep into the evidence which QIL will presumably tender at the trial and, as I have already indicated in respect of some of the other requests advanced by PwC, represents an inadmissible request via particulars for what amounts in substance a narrative or a detailed expert witness statement. PwC will, of course, be entitled to see at a later stage the witness statements of the witnesses to be tendered by QIL in accordance with Ord. 63A r. 22. But it is not entitled to see them by way of particulars.
66. This might be thought by some to represent a defect in our system of civil procedure. This outcome is nonetheless supported by both principle and authority: the pleadings define the issues between the parties and particulars serve to clarify the scope and extent of those issues. After all, Ord. 19, r. 3 requires a pleading to contain – and contain only – “a statement in summary form of the material facts on which the party pleading relies….but not the evidence by which they are to be so proved….” The evidence to be given in support of the litigants’ pleas accordingly remains that to be given viva voce at trial and, in the case of the Commercial Court, supplemented by extensive witness statements exchanged between the parties in advance of trial.
67. If, however, the scope of particulars could be expanded so as to go beyond the general range of evidence test articulated in Cooney v. Browne, it would conflate the pleadings/evidence distinction which is at heart of Ord. 19 and would ultimately lead over time to a state of affairs where pleadings did not simply define issues and the pleader was required to supply evidence to support the plea.
68. It is true, of course, that the Oireachtas has from time to time enacted legislation to require precisely this: see, e.g., s. 8 of the Defamation Act 2009 for a contemporary example of where the litigant is required to file a verifying affidavit in support of the pleas. These legislative changes are nonetheless issue specific and have not introduced any general change in the system of civil procedure introduced by the Common Law Procedure (Amendment) Ireland Act 1853 and supplemented from time to time by the Rules of the Superior Courts.
Conclusions
69. The fact remains, however, that applying the existing issues/evidence distinction which is fundamental to our current system of pleading, this request is inadmissible. I would accordingly allow the appeal in respect of this specific request. This conclusion also governs the rather similar request contained in 21(12) X E and XI D and E.
Part V: PwC’s Cross-Appeal
70. I now propose to consider PwC’s cross-appeal in respect of those particulars to which Costello J. refused to direct QIL to reply.
Calculations of Margin over Best Estimate: Particulars 11(3) III, VI, IX and XII
71. Particulars 11(3) III, VI, IX and XII are all in identical terms, save that they related to different years. Particular 11(3) III is in the following terms:
“Under the heading ‘Results as of 31 December 2005’ of the 24 June 2014 Replies, please set out each of the steps taken in the calculation of the figure of 21,061 for ‘Margin over Best Estimates’ for the results as of 31 December 2005.”
72. As I have already explained elsewhere in this judgment, this request for particulars is in effect an attempt to interrogate QIL in relation to details of its proposed evidence. As such, it plainly goes well beyond any the scope of any particular which seeks to identify the parameters of the pleadings, I consider that this request for further particulars was properly disallowed by Costello J. and I would affirm her decision in that regard.
73. This conclusion also governs the requests at paragraph 11(3) VI, IX and XII.
The re-estimation process: particulars 11(3) XIII A, B, C, D and E
74. Under this heading PwC sought particulars in respect of a variety of aspects of the re-estimation process.
75. With particular XIII A PwC sought details of each of the steps taken in the “re-estimation of the best estimate of the plaintiff’s ultimate net claims cost as at 31 December in that year.” As this is a question which relates directly to method whereby particular figures by QIL’s expert advisers, it does not relate to the range of evidence, but rather to aspects of specific items of evidence which QIL will tender at trial. Applying, therefore, the test in Cooney v. Browne, it is clear this request is not a valid request for particular. This conclusion governs a not dissimilar request under XIII B.
76. Particular XIII C seeks details of the financial effects of the different steps taken in the course of the re-estimation process. For all the reasons set out elsewhere in this judgment in relation to particulars requesting details of the effects of certain price and rate changes, it follows, therefore, that such a request reaches well beyond the range of evidence and must be disallowed.
Conclusions
77. It follows, therefore, that I would affirm the decision of the High Court in respect of particulars 11(3)XIII A, B and C.
Particulars 11(3) XIII D and E: specification of the then extant actuarial standards and contemporaneous and data
78. By particulars XIII D and E PwC have sought details of the then extant actuarial standards and contemporaneous information and data in connection with which the re-estimation exercise was carried out. Similar requests (expressed in somewhat different language) were contained in particulars 11(3)XIII F and G and I have elsewhere in this judgment upheld the decision of the High Court to direct such particulars.
79. For my part, I see no real difference between the requests at D and E as compared with F and G. All four requests relate to the range of information and data to which it is said PwC ought to have had regard at the time of the audit. As these requests are integral to the claim of professional negligence I consider that this is information to which, as a matter of basic fairness of procedures, it should be entitled.
80. As I indicated with regard to the particulars at 11(3) F and G, it will suffice if a broad outline as to the relevant range of such information and data is supplied by QIL. It may be supposed that a succinct statement of the material to which QIL says Mazars had regard in conducting its re-estimation exercises should suffice for this purpose.
81. I would accordingly allow PwC’s cross-appeal in respect of particulars 11(3) F and G.
Details of loss-making business: Particulars 21(12) V A, B, C and D
82. By particulars 21(12) V A, B C and D, PwC sought to elicit further information in relation to alleged loss-making business written by QIL.
83. In particular 21(12)V A PwC sought details of the loss-making business to which QIL referred in their replies to particulars of 14 March 2014. By analogy with the conclusions already reached elsewhere in this judgment in respect of the particulars seeking details of the loss-making business in 11(3)VII B and D. Given that the contention that there would have been substantial cost savings had QIL been alerted to the extent of the under-provisioning is central to its claim, I consider that PWC is entitled to know in broad outline the details of the savings which it is said the exiting of these markets would have generated. I would therefore allow PwC’s cross-appeal from the decision of the High Court in this respect of this particular. This conclusion also governs the related requests at C (“loss making lines”) and D (steps to effectuate necessary cost savings).
84. Particular 21(12)V B sought details by reference to each individual year:
“…in respect of each class of business within each geographical region, how it is contended [that] the plaintiff’s pricing model would have been adjusted to decrease the amount of loss-making businesses to reflect the causes of under-reserving.”
85. I consider that this request relates to details of specific items of evidence and, accordingly, fails the Cooney v. Browne test. In practice, this request is similar in practice to the request at particular 21(12) X D and I would also refuse to direct an answer this particular for much the same reasons.
Conclusions
86. I would accordingly dismiss PwC’s cross-appeal in respect of particular 21(12) X A, B, C and D.
Re-Opened Claims: Particulars 97(1) I, II and III and particular 135(1)
87. The final general issue was in relation to re-opened claims. In replies to particulars dated 12 February 2015 QIL had already provided PwC with the number of re-opened claims during the material period by way of further particularising a plea originally contained in paragraph 65.5 of the statement of claim. Assuming that these figures are correct, they show that the number of re-opened claimed jumped from 1,282 in 2005 to 31,350 in 2008. The relevance of this to plaintiff’s case is that it was the extraordinary increase in the number of reopened claim files which ought in itself to have given cause for concern and that it was not relying on the reason why the files were being reopened.
88. PwC sought, however, the following further and better particulars at particulars 97(1) in respect of the re-opened claims:
“(I) For each financial year, in tabular format if possible, please provide a breakdown of the number and value (in terms of claims cost) of reopened files in each accident year up to 2008, and further categorised by principal reason that caused the files to be reopened.
(II) For each financial year, in tabular format if possible, please provide details of the value of the claims cost deterioration relating to reopened claims files in each accident year up to 2008 arising in financial years 2009 and later.
(III) Please particularise the extent to which the plaintiff alleges that:
A. files reopened in 2006, 2007 and 2008 and had been closed in 2005 or prior years and were reopened because of information that was available at the time of the defendant’s audit of the plaintiff’s 2005 financial statements.
B. files reopened in 2007 and 2008 had been closed in 2006 or prior years and were reopened because of information that was available at the time of the defendant’s audit of the plaintiff’s 2006 financial statements.
C. files reopened in 2008 had been closed in 2007 or prior years and were reopened because of information that was available at the time of the defendant’s audit of the plaintiff’s 2007 financial statements.”
89. PwC also sought particulars at particular 135 I of the number of the plaintiff’s re-opened files “by reference to each class of business within each geographical region.”
90. In her judgment Costello J. rejected PwC’s argument that it was entitled to these particulars, saying:
“…..the defendant is entitled to particulars of the case advanced by the plaintiff. It is not entitled to seek information by way of particulars of matters which it requires for its defence if it does not relate to the case it has to answer. These particulars do not relate to the plaintiff’s case in relation to reopened claims. The plaintiff’s case is not based upon either the value of the reopened claims or the reason that the files have been reopened. It has not checked each of the approximately 60,000 reopened files to ascertain the reason the individual files were reopened or the value of the files or the breakdown of the files by reference to each class of business within each geographical region. The defendant is seeking information by way of a notice for particulars of matters which the plaintiff simply does not have because it has not carried out the relevant analysis as it forms no part of its case. Rejoinder 97(1)I is not a proper matter for particulars as it does not arise out of the plaintiff’s claim. Furthermore, in order to provide the particulars sought the plaintiff would have to carry out an extremely onerous exercise which is not part of its case. This clearly would be inappropriate and unfair to the plaintiff. The value of the claims cost deterioration relating to reopened claimed files in each action year up to 2008 is not directly part of the plaintiff’s claim and therefore the particular II is not a proper matter for particulars. Rejoinder 97(1) III A-C are related to the reasons for the reopening of the closed files and therefore are not a matter for particulars. I accept that the plaintiff’s was correct in refusing Rejoinder 97(1) IV as that likewise was not a matter for particulars and was based on a premise not advanced by the plaintiff. I therefore refuse these particulars.
The final request is Rejoinder 135 I A where the defendant seeks a breakdown of the number of plaintiff’s reopened files by reference to each financial year and by reference to each class of business within each geographical region. The defendant has not clarified why this breakdown is required and it does not arise out of the case pleaded by the plaintiff. I refuse this also.”
91. In my view, Costello J. was entirely correct in refusing to order the delivery of these particulars for all the reasons which she gave. I would add that, measured against the parameters of the present claim, these details classically amount to an endeavour to seek details of particular items of evidence, as distinct from the general range of evidence demarcating the boundaries of the claim as envisaged by Henchy J. in Cooney.
Conclusions on the re-opened claims issue
92. I would accordingly dismiss PwC’s cross-appeal against the failure of the High Court to order particulars in relation to the re-opened claims issue.
Part VI
Overall conclusions
93. In summary, therefore, I would conclude as follows:-
94. First, so far as QIL’s appeal is concerned, I would dismiss the appeal in respect of particulars 11(3) XIII F and G, 21(12) VII B, X A and F, XI A and F, XV B, XVI A and XVII A, but I would allow the appeal in respect of particulars 11(3) II, V, VIII and XI, 21(12) VII A and D, IX B and D, X D and E, XI C, D and E.
95. Second, so far as PwC’s cross-appeal is concerned, I would dismiss the cross-appeal in relation to particulars 11(3) III, VI, IX, XII, VIII A, B and C, 21(12) V A, B, C and D and 97(1) I, II, III and particular 135(1) , but I would allow the cross-appeal in respect of particulars 11(3) XII F and G, 11(3)V A, C and D.