Hill v Van Erp - [1997] HCA 9 - HCA 1997 case summary — Zoe

CTHHCA

Hill v Van Erp

[1997] HCA 9

High Court of Australia|1997-03-18|Before: Brennan CJ, Gummow JJ

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Source facts

Court

High Court of Australia

Decision date

1997-03-18

Before

Brennan CJ, Gummow JJ

Source

Original judgment source is linked above.

Judgment (118 paragraphs)

[1]

The application of such a principle must also lead to a considerable, perhaps massive, expansion of the law of economic loss. Consider, for example, the case of the accountant who is paid a fee by a client to investigate the prospects of a business knowing that the client intends to purchase the business as a gift for a relative. Does the accountant owe the relative a duty of care? Is the accountant liable for the profits that the relative would have earned if, but for the accountant's negligence in assessing its viability, the business had been purchased? Does the insurance broker who is instructed to take out a life assurance policy for a client owe a duty of care to the proposed beneficiary? Is the broker liable to the beneficiary if, as the result of the broker's undue delay, the "assured" dies before the policy is taken out? Moreover, it is difficult to see why the duty should be confined to gifts as opposed to benefits. In that event, professional persons, acting in purely commercial situations, may often owe duties to third parties who stand to benefit from the retainer of a professional person by a client.

[2]

To give the beneficiary a remedy in negligence involves too great a departure from accepted doctrine and must inevitably extend the frontiers of legal liability. How far this extension will go in a world where commercial operations are becoming increasingly integrated and sophisticated is impossible to foresee. If change in the law is to be made, it should be done by the legislature which can deal with this special case, perhaps by amending the legislation relating to wills, rather than by extending the law of negligence in a way that departs from its basic doctrines.

[37]

[The] House should in cases such as these extend to the intended beneficiary a remedy under the Hedley Byrne principle by holding that the assumption of responsibility by the solicitor towards his client should be held in law to extend to the intended beneficiary who (as the solicitor can reasonably foresee) may, as a result of the solicitor's negligence, be deprived of his intended legacy in circumstances in which neither the testator nor his estate will have a remedy against the solicitor. (Emphasis added.) Lord Browne-Wilkinson considered [112] that, whilst the law did 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, such a duty will arise if there is a "special relationship" between the parties. Here the intended beneficiary was "wholly dependent" upon the solicitor carefully carrying out his function [113] . His Lordship also used, of the solicitor, the phrase "assumption of responsibility for the task" and then concluded [114] : [B]y accepting instructions to draw a will, a solicitor does come into a special relationship with those intended to benefit under it in consequence of which the law imposes a duty to the intended beneficiary to act with due expedition and care in relation to the task on which he has entered. Lord Nolan said [115] that, in the particular circumstances of the case, "the degree of proximity to the plaintiffs could hardly have been closer". His Lordship referred to the role of the defendants as family solicitors and to dealings in relation to the matter of the revised wishes of the testator between the defendants and one of the testator's daughters and the husband of the other daughter. His Lordship added [116] : It would be absurd to suggest that they placed no reliance upon the [defendants] to carry out the instructions given to them. I do not say that other potential legatees, less intimately concerned with the carrying out of the testator's wishes, would necessarily be deprived of a remedy: I simply point to the facts as being relevant to the pragmatic, case-by-case approach which the law now adopts towards negligence claims. In his dissenting speech, Lord Mustill [117] referred to the conduct of the case on the basis of a stark choice "between a duty of general application or no duty at all". What appeared to his Lordship to be "an intermediate solution" had not been investigated either on the facts or the law and for that reason it was inappropriate to pursue it. What would have been involved in such an attempted "solution" is significant for the present appeal. The "special features" of the case which had not been relied upon by counsel were perceived as follows by Lord Mustill [118] : The solicitor, the testator and the intended beneficiaries were not strangers. When the division within the family had healed the testator convened a meeting at which he indicated his wish that the plaintiffs should benefit from his will, and asked the first plaintiff to telephone the solicitor and tell him that the will should be changed. This is what the first plaintiff in fact did. Some weeks later the first plaintiff made an appointment for the solicitor to see the testator after his return from holiday. This appointment was frustrated by the testator's illness and death. My Lords, I was for a time attracted by the possibility that a judgment in favour of the plaintiffs could be upheld on these particular facts on the ground that there existed a special relationship not very far distant from Hedley Byrne, even if for the reasons given I am unable to recognise a general duty of care towards intended beneficiaries. 1. Cane, Contract, Tort and the Lloyd's Débâcle, in Rose (ed), Consensus Ad Idem (1996) 96, at p 109. 2. White v Jones [1995] 2 AC 207 at 268 3. White v Jones [1995] 2 AC 207 at 274 4. White v Jones [1995] 2 AC 207 at 275 5. White v Jones [1995] 2 AC 207 at 276 6. White v Jones [1995] 2 AC 207 at 295 7. White v Jones [1995] 2 AC 207 at 295 8. White v Jones [1995] 2 AC 207 at 291-292 9. White v Jones [1995] 2 AC 207 at 291

[51]

The law of contract is unable to provide the remedy [against the solicitor]. In some cases, where the purpose of a contract is to confer a benefit on a third party, the purpose can be achieved, in the event of breach, by the court making an order compelling the party in breach specifically to perform his obligation to make a payment or confer some other benefit on a third party [124] . That route is not available here. The solicitor did not agree to confer a benefit on the intended beneficiary. He agreed to take steps to enable his client to do so. Specific performance of that agreement is no longer possible once the client has died. I have, indeed, considered whether a remedy for breach of contract could be shaped whereby, the client having lost the opportunity to make a gift to the intended beneficiary, (1) his estate should be regarded as having lost a sum equal to the amount of the intended gift, and (2) the executors should hold that sum, when recovered from the solicitor, upon trust for the intended beneficiary. [125] In the event, his Lordship did not shape any such remedy. In the House of Lords Lord Goff of Chieveley considered but rejected [126] the possibility of bringing the instant case within the group of decisions described in The Albazero [127] . There a plaintiff may sue in contract and recover damages for a loss suffered by a third party on the footing that the plaintiff be accountable to the third party for the damages so recovered [128] . It should be borne in mind that whatever criticisms may fairly be made of the privity doctrine, there remains "a sensible concern not to allow every breach of contract to generate a tort claim by any third party who had an interest in the performance of that contract" [129] . 1. White v Jones [1995] 2 AC 207 at 223-224The more relaxed view of privity doctrine taken in various jurisdictions in the United States has led to decisions in which the prospective beneficiary has recovered in contract against the testator's lawyer; see the authorities discussed in Eisenberg, Third-Party Beneficiaries, Columbia Law Review, vol 92 (1992) 1358, at pp 1393-1396. 2. See Beswick v Beswick [1968] AC 58 3. See as to that latter possibility Briggs, Privity Problems in Damages for Breach of Contract, New Law Journal, vol 131 (1981) 343; Barker, Are We up to Expectations? Solicitors, Beneficiaries and the Tort/Contract Divide, Oxford Journal of Legal Studies, vol 14 (1994) 137, at pp 140-141. 4. White v Jones [1995] 2 AC 207 at 266-267 5. [1977] AC 774 at 846-847. 6. cf in tort, as to recovery of the value of services to be gratuitously provided, Griffiths v Kerkemeyer (1977) 139 CLR 161 Nguyen v Nguyen (1990) 169 CLR 245 at 261-263 Kars v Kars (1996) 187 CLR 354 at 370-371and cf Hunt v Severs [1994] 2 AC 350 at 363-364 7. Stapleton, Duty of Care: Peripheral Parties and Alternative Opportunities for Deterrence, Law Quarterly Review, vol 111 (1995) 301, at p 324; cf Fleming, Tort in a Contractual Matrix, Osgoode Hall Law Journal, vol 33 (1995) 661, at p 677.

[53]

cf Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 174-177 2. Luntz, Solicitors' liability to third parties, Oxford Journal of Legal Studies, vol 3 (1983) 284, at pp 288-289; Cane, Negligent Solicitors and Doubly Disappointed Beneficiaries, Law Quarterly Review, vol 99 (1983) 346; Matthews, Round and Round the Garden [1996] Lloyd's Maritime and Commercial Law Quarterly 460. 3. Birks, An Introduction to the Law of Restitution, revised ed (1989), pp 133-136. 4. [1996] Ch 217 at 227; discussed Watts, The Limits of Profit-Stripping for Wrongs, Law Quarterly Review, vol 112 (1996) 219, at pp 220-221. 5. The expression "at the expense of another" appears first to have been used by Professor Ames in his article, "The History of Assumpsit", Harvard Law Review, vol 2 (1988) 53, at pp 64, 66. This is pointed out by Morritt LJ in Kleinwort Benson Ltd v Birmingham City Council [1996] 3 WLR 1139 at 1157[1996] 4 All ER 733 at 750 6. See Smith, Three-Party Restitution: A Critique of Birks' Theory of Interceptive Subtraction, Oxford Journal of Legal Studies, vol 11 (1991) 481, at pp 482-487, 511-514. 7. In his article "Rationalizing Restitution", California Law Review, vol 83 (1995) p 1191, the American scholar, Professor Andrew Kull, after referring (p 1195) to decline in teaching of the subject in that country, turns (pp 1219-1220) to the basic definitional issue of whether restitution is "merely a description of the end result" or "a reference to the basis of liability", and continues (p 1241): "Before we can tell a straight story about restitution, we must decide what the subject is about. Is restitution the body of law concerned with avoiding unjust enrichment? Is it mostly that but partly other things as well? Or is the identification with unjust enrichment altogether an illusion, and restitution merely a hodgepodge of devices for undoing, unwinding, throwing into reverse, and giving things back?" 8. Soh, Privity of Contract and Restitution, Law Quarterly Review, vol 105 (1989) 4; Jackman, Recent Cases, Australian Law Journal, vol 63 (1989) 368; Proksch, Restitution and Privity, Australian Law Journal, vol 68 (1994) 188; Barker, Unjust Enrichment: Containing the Beast, Oxford Journal of Legal Studies, vol 15 (1995) 457, at pp 468-471.

Parties

Applicant/Plaintiff:

Hill

Respondent/Defendant:

Van Erp

Cases Cited (37)

High Court of Australia Brennan CJ Dawson, Toohey, Gaudron, McHugh and Gummow JJ Hill v Van Erp [1997] HCA 9

[1964] AC 465. His Lordship expanded the reasons advanced for contending that a beneficiary's claim can lie only in contract [4] : Here I refer not only to the fact that the claim is one for damages for pure economic loss, but also to the need for the defendant solicitor to be entitled to invoke as against the disappointed beneficiary any terms of the contract with his client which may limit or exclude his liability; to the fact that the damages claimed are for the loss of an expectation; and also to the fact (not adverted to below) that the claim in the present case can be said to arise from a pure omission, and as such will not (apart from special circumstances) give rise to a claim in tortious negligence. Faced with points such as these, the strict lawyer may well react by saying that the present claim can lie only in contract, and is not therefore open to a disappointed beneficiary as against the testator's solicitor. This was indeed the reaction of Lush and Murphy JJ in Seale v Perry [5] , and is one which is entitled to great respect.
1. [1995] 2 AC 207.
2. White v Jones [1995] 2 AC 207 at 256-257
3. [1964] AC 465.
4. White v Jones [1995] 2 AC 207 at 261-262
5. [1982] VR 193.

[1982] VR 193. See at 198-199, per Lush J and at 206-207, per Murphy J; contra at 236ff, per McGarvie J. 2. [1980] WAR 97. 3. [1987] Tas R 60 (see White v Jones [1995] 2 AC 207 at 255-256).

Whatever might have been thought to be the position before the broad principles of the law of negligence were stated in modern form in Donoghue v Stevenson [15] , it is now beyond doubt that, for the reasonably foreseeable consequences of careless or unskilful conduct, an architect is liable to anyone whom it could reasonably have been expected might be injured as a result of his negligence. To such a person he owes a duty of care quite independently of his contract of employment. Then his Honour said [16] : [N]either the terms of the architect's engagement, nor the terms of the building contract, can operate to discharge the architect from a duty of care to persons who are strangers to those contracts. Nor can they directly determine what he must do to satisfy his duty to such persons. That duty is cast upon him by law, not because he made a contract, but because he entered upon the work. Nevertheless his contract with the building owner is not an irrelevant circumstance. It determines what was the task upon which he entered. If, for example, it was to design a stage to bear only some specified weight, he would not be liable for the consequences of someone thereafter negligently permitting a greater weight to be put upon it. Generally speaking, however, a solicitor's duty is owed solely to the client subject to the rules and standards of the profession [17] . That is because the solicitor's duty is to exercise professional knowledge and skill in the lawful protection and advancement of the client's interests in the transaction in which the solicitor is retained and that duty cannot be tempered by the existence of a duty to any third person whose interests in the transaction are not coincident with the interests of the client. But the interests of a client who retains a solicitor to carry out the client's testamentary instructions and the interests of an intended beneficiary are coincident. 1. (1963) 110 CLR 74 at 84. 2. [1932] AC 562. 3. Voli (1963) 110 CLR 74 at 85 4. See White v Jones [1995] 2 AC 207 at 223

If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition [52] , sterilise many contracts and, in the well-known dictum of Chief Judge Cardozo [53] , expose defendants to potential liability "in an indeterminate amount for an indeterminate time to an indeterminate class". So the law set about defining categories of cases of pure economic loss where, without imposing indeterminate liability or destroying commercial competition, it could recognise the existence of a duty of care, the breach of which would sound in damages. The most significant case is, perhaps, Hedley Byrne & Co Ltd v Heller & Partners Ltd [54] in which the House of Lords held that loss caused by a negligent misstatement might give rise to liability in damages, but only where there was an express or implied assumption of responsibility on the part of the person making the statement and reliance placed upon that person's skill and judgment by the person to whom the statement was made. In other words, liability for pure economic loss was recognised in the case of a negligent misstatement, but only for the breach of a duty of care arising out of a particular relationship between the parties. 1. (1995) 182 CLR 609 at 632. 2. See Dorset Yacht Co v Home Office [1970] AC 1004 at 1027, per Lord Reid. 3. Ultramares Corporation v Touche (1931) 255 NY 170 at 179[174 NE 441 at 444]. 4. [1964] AC 465.

Save in the case of those rash testators who make their own wills, the proper transmission of property from one generation to the next is dependent upon the due discharge by solicitors of their duties. As a result, there is a general reliance extending beyond their clients which is placed upon solicitors in relation to the preparation and execution of wills which is at least analogous with that placed upon public authorities in relation to statutory powers of inspection. Of that situation, Mason J in Sutherland Shire Council v Heyman [108] said: the plaintiff's reasonable reliance will arise out of a general dependence on an authority's performance of its function with due care, without the need for contributing conduct on the part of a defendant or action to his detriment on the part of a plaintiff. Reliance or dependence in this sense is in general the product of the grant (and exercise) of powers designed to prevent or minimise a risk of personal injury or disability, recognised by the legislature as being of such magnitude or complexity that individuals cannot, or may not, take adequate steps for their own protection. This situation generates on one side (the individual) a general expectation that the power will be exercised and on the other side (the authority) a realisation that there is a general reliance or dependence on its exercise of power. The notion of general reliance or dependence described by Mason J is apt also to describe the situation in which, whilst there will usually be no specific reliance by an intended beneficiary upon a solicitor retained to attend to the will, the intended beneficiary's interests are totally and unavoidably dependent upon the proper performance of a function within the sole province of the solicitor. And, it might be added, in that situation the solicitor knows of the beneficiary's dependence and in that respect may be regarded as having assumed responsibility towards the intended beneficiary. 1. [1995] 2 AC 207 at 276. See also Gartside v Sheffield, Young & Ellis [1983] NZLR 37 at 43 2. (1985) 157 CLR 424 at 464.

(1861) 4 Macq 167 at 177. 2. [1980] Ch 297. 3. Note that in Scotland, the Outer House of the Court of Session has held that it is bound by Robertson v Fleming ; see Weir v J M Hodge & Son [1990] SLT 266 MacDougall v MacDougall's Executors [1994] SLT 1178 4. [1978] AC 728. 5. Anns [1978] AC 728 at 751-752

Caparo Industries Plc v Dickman [1990] 2 AC 605 at 618, per Lord Bridge of Harwich, citing Brennan J in Sutherland Shire Council v Heyman - see n 14. See also Henderson v Merrett Syndicates Ltd [1995] 2 AC 145The Anns approach continues to be followed in New Zealand: see, eg, Brown v Heathcote County Council [1986] 1 NZLR 76 South Pacific Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd [1992] 2 NZLR 282which was applied in Invercargill City Council v Hamlin [1994] 3 NZLR 513(upheld in the Privy Council [1996] AC 264). It has also been followed to some extent in Canada: see, eg, City of Kamloops v Nielsen (1984) 10 DLR(4th) 641; Canadian National Railway Co v Norsk Pacific Steamship Co Ltd (1992) 91 DLR(4th) 289. See also British Columbia Hydro & Power v N D Lea & Associates (1992) 92 DLR(4th) 403 at 430. 2. (1985) 157 CLR 424 at 481. See also Hawkins v Clayton (1988) 164 CLR 539 at 556 3. [1995] 2 AC 207.

[1980] WAR 97. See also Finlay v Rowlands, Anderson & Hine [1987] Tas R 60where Ross v Caunters [1980] Ch 297was accepted as correct. 2. [1995] 2 AC 207 at 255.

[1978] AC 728 at 751-752: "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." 2. See Murphy v Brentwood District Council [1991] 1 AC 398In this country, its persuasive force finished with the decision of this Court in Sutherland Shire Council (1985) 157 CLR 424.

Lord Browne-Wilkinson said that a solicitor accepting instructions to draft a will knows that the future welfare of an intended beneficiary is dependent on his or her proper execution of the task. By accepting instructions, the solicitor assumes "responsibility for the task of procuring the execution of a skilfully drawn will knowing that the beneficiary is wholly dependent upon his carefully carrying out his function" [60] . His Lordship said that there were "therefore present many of the features which in the other categories of special relationship have been treated as sufficient to create a special relationship to which the law attaches a duty of care" [61] . Lord Browne-Wilkinson added that general factors such as the transmission of property from one generation to the next being dependent upon the work of solicitors made it fair, just and reasonable to impose a duty of care in favour of a beneficiary. 1. [1914] AC 932. 2. White [1995] 2 AC 207 at 272 3. White [1995] 2 AC 207 at 273-274 4. White [1995] 2 AC 207 at 275 5. White [1995] 2 AC 207 at 275 6. White [1995] 2 AC 207 at 276

(1963) 110 CLR 74

(1976) 136 CLR 529

(1986) 162 CLR 340

(1970) 122 CLR 628

(1994) 179 CLR 332

(1988) 164 CLR 539

(1988) 165 CLR 107

(1995) 182 CLR 609

(1984) 155 CLR 549

(1985) 157 CLR 424

(1986) 160 CLR 16

(1986) 162 CLR 376

(1994) 179 CLR 520

(1991) 172 CLR 243

(1995) 185 CLR 307

(1981) 27 SASR 374

(1990) 170 CLR 306

(1977) 139 CLR 161

(1990) 169 CLR 245

(1996) 187 CLR 354

(1975) 133 CLR 150

(1990) 169 CLR 540

(1968) 118 CLR 1

(1985) 160 CLR 548

(1997) 188 CLR 241

(1992) 175 CLR 353