The Differences and Similarities between the Laws of Contract and Tort
There is at once a strict division between Contract and Tort in terms of their legal classification and frequent factual situations in which the potential overlap between the two jurisdictions is such as to render it necessary either to decide to proceed and enforce one or other form of liability or, in certain cases, to justify the pursuit of a “hybrid” claim arguing liability in the alternative.
Poole supplies a succinct and workable distinction:
“Contractual obligations are voluntarily assumed, in that they derive from agreements which individuals are free to make or refrain from making. Tortious obligations arise independently of the will of those involved, and derive from standards of behaviour imposed by law.”
The fundamental relationship between contract and tort was canvassed in the classic “snail in the ginger beer bottle” case of Donoghue v Stevenson . The dissenting judges in that case argued that the purchaser was not a party to the contracts for the manufacture and sale of the goods and that if relief was to be granted to such a purchaser this would be a misapplication of sale of goods law to the field of tortious liability. This approach was rejected by the majority with Lord Macmillan (at p.611) arguing that the fact that a contract of sale once existed between manufacturer and retailer should be disregarded and that the correct question to be posed should therefore be whether a duty of care existed between the manufacturer and the consumer as one who might reasonably foreseeably have been injured by the negligent actions of the former upon the application of which test, contractual duties owed to other parties became irrelevant.
Refusal to import tortious liability into situations where contractual remedies might have been available can produce anomalous results. In Van Open v Trustees of Bedford School an attempt was made to argue that the failure of a school to extend insurance cover to an injury arising from a rugby accident gave rise to a liability in tort. However, it was held (perhaps somewhat artificially) that this was an issue which ought to have been regulated by the contractual relationship between the parties and that therefore in the absence of any express undertaking, liability for the failure to extend cover would not sound in tort.
The area in which the choice between proceeding in contract or in tort is perhaps most significant relates to the measure of loss recoverable. The usual method of enforcement of contractual obligations is by compensation for the losses caused by their breach. Contract distinguishes between expectation interest and reliance interest. The former is the measure of what it might take to restore the claimant to the position that he would have enjoyed had the contract been performed; the latter seeks to place the claimant in the position that he would have occupied if the contract had never been entered into and as such does not include compensation for the loss of any anticipated gain. Therefore, damages on the reliance basis represent the same test as applies in tort. Damages on the expectation basis are fundamentally different. In tort, the courts have long had difficulty with the concept of pure economic loss. It is clear from cases such as Cattle v Stockton Waterworks and Spartan Steel v Martin & Co that while damages will be awarded for economic loss which is consequent upon recoverable physical damage, except in such “special relationship” cases as Hedley Byrne & Co v Heller and Partners Ltd , economic loss without more will not be recoverable. This approach is often justified on the basis of the “floodgates” argument advanced by Blackburn J in Cattle (supra). It may therefore be argued that in this respect, reliance upon contract law where it is available may be the preferable course of action.
There may of course be situations in which there is concurrent liability in tort and contract. In Holt v Payne Shillington , duties in both jurisdictions may exist but this does not necessarily mean that they are identical:
“The difference in scope between the two would reflect the more limited factual basis which gave rise to the contract and the absence of any term in the contract which precluded or restricted the duty of care in tort.”
The attempt to assert concurrent liability can prove particularly controversial when there are limitation implications. The period of limitation in contract begins to run when the relevant breach occurs and not, as in tort, when the damage is suffered. Therefore, claims arising from the same set of circumstances can in fact become time-barred years apart and while there would otherwise be no obvious logical reason for distinguishing between the two jurisdictions, there may be distinct procedural advantages in preferring tort. The effect that this has upon the development of the law was heavily criticised by Mustill LJ in Sociéte Commerciale de Réassurance v ERAS (International) Limited :
“…so far as limitation is concerned, the rules regarding the accrual of the cause of action tend to push the evolution of the law in the wrong direction. In most if not all cases a plaintiff will be better off by framing his action in tort whereas, in our judgment, if a contract is in existence this is the natural vehicle for recourse.”
Finally, there is a potential distinction between contract and tort in terms of their respective approaches to the issue of remoteness of damage. The test in tort is whether the damage was reasonably foreseeable and in cases such as The Wagon Mound (No. 1) the courts have stressed the need to establish foreseeability as opposed to “directness” as a basis for establishing remoteness of damage. In contract, the test is one of reasonable contemplation thus emphasising the distinction between the consequences of duties voluntarily assumed and those imposed by law as discussed above. However, in H. Parsons (Livestock) v Uttley Ingham & Co Ltd , the Court of Appeal preferred to analyse the difference in terms of the distinction between reliance loss and expectation loss as described above rather than distinguish between these features of contract and tort per se.
Bibliography
- Deakin, S., Johnston, A. & Markesinis, B., Markesinis and Deakin’s Tort Law, (5th Ed., 2003)
- Kidner, R., Casebook on Torts, (8th Ed., 2004)
- Poole J., Textbook on Contract Law, (7th Ed., 2004)
- Treitel, G., The Law of Contract, (11th Ed., 2003)
- Halsbury’s Laws of England Direct (Lexis/Nexis)
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