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Business Law-Historical Development of the Tests

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Essay title: Business Law-Historical Development of the Tests

We live in a legal system in which we all have a duty to protect other persons from harm. The question the court must examine is what degree of duty exists under what specific circumstances. Although there were some attempts in the late 19th century to develop a general test, there was no accepted test until 1932.

Ø The neighbour test

The classic formulation of the Ў®neighbourЎЇ test of Lord Atkin in Donoghue v Stevenson [1932] AC 562 is the most frequently cited attempt to rationalize the duty of care: Ў°You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Ў± Who then in law is my neighbour? He defined the neighbour as Ў°persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I an directing my mind to the acts or omissions which are called in question.Ў±

This case is very famous, for it destroyed the privity fallacy. In this case, the manufacturer of a bottle of ginger beer was liable to a consumer who was made seriously ill by the partly decomposed body of a snail in the bottle from which she had been drinking. Although the consumer was a friend of the purchaser, the manufacturer owed a duty of care to the ultimate consumer.

Therefore, the test in Donoghue gave the law a starting point for the question of whether a duty of care existed, based on reasonable foreseeability of damage to the claimant.

Ø The expansion of negligence liability

A more elaborate test ЎЄ the two-stage-test of the existence of a duty of care, was put forward by Lord Wilberforce in Anns v Merton London Borough Council [1978] 1 AC 728 751-2: Ў°The first stage was to establish that the parties satisfied the requirements of the neighbour test. If this was done then a duty would exist unless the court found that policy dictated that there should be no duty .Ў±

As the courts applied the two-stage-test, there was dramatic expansion in negligence liability in the 1970s and the early 1980s. The high-water mark of this expansion was reached in Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520.

In this case, the D mixed and laid a factory floor for PЎЇs factory under contract. But the floor started cracking over its surface two years later, then the P replaced the floor and made a claim for Ўк200,000 against the D for damages for physical and consequential economic loss. Although there was no physical injury to the P beyond the defective product, judges held in favor of the P because of the sufficient relationship of proximity between P and D, and the lack of any considerations limiting the scope of the duty of care.

This case made new law in England because of the absence of any physical injury to the plaintiff or the likelihood of any. And the House of Lords apparently extend liability for economic loss to encompass traditional contract liability.

Ø Retraction of negligence

From about 1983 the courts started to rein back the development they had unleashed. The case in point is Caparo Industries Pty. Ltd. v Dickman [1990] 1 All ER 568. In this case, the court held that the companyЎЇs auditors didnЎЇt owe a duty of care to the respondents who purchased shares in reliance on the audited accounts they had negligently prepared. Although it is foreseeable that persons use the audited accounts to determine whether to purchase shares, and may suffer economic loss if the accounts are inaccurate, it was insufficient to establish a duty of care. The court found that the purpose of the auditor was to enable the members to exercise proper control over the company, not for the purpose of individual shareholders making personal

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