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Module 7: Law of torts

The theoretical foundations for actions in tort and contract are quite separate. Long before the imperial march of
modern negligence law began, contracts of service carried an implied term that they would be performed with
reasonable care and skill. Persons who give consideration for the provision of services expect that those services
will be provided with due care and skill. Reliance on an implied term giving effect to that expectation should not
be defeated by the recognition of a parallel and concurrent obligation under the law of negligence. The evolution of
the law of negligence has broadened the responsibility of professional persons and requires them to take reasonable
care and skill even in situations where a contractual relationship cannot be established. But given the differing
requirements and advantages of each cause of action, there is no justification in recognising the tortious duty to the
exclusion of the contractual duty.
(Astley v Austrust Ltd [1999] HCA 6 per Gleeson CJ, McHugh, Gummow & Hayne JJ at para. 48)

This module provides students with a brief introductory overview of liability in tort law, as imposed by the
law of obligations. Torts are one of four interactive categories of civil law obligations, i.e. the common law
(excluding equity and trusts): contract, tort, unjust enrichment and other causative events. Tort law has a
distinctive bilateral structure and court litigation process: bilateral primary legal obligations which arise by
unilateral operation of law, the violation of which by the tortfeasor generates new secondary obligations of
reparation (the duty to repair, or damages) in favour of the right-holder, as crystallised by court enforcement.
As an analytical framework, its useful to adopt the explanatory theory or view of the conceptual structure of
tort practice as encapsulating corrective justice: a person being held outcome-responsible for certain adverse
transactional outcomes they inflict, i.e. wrongs to privileged legal rights of others. There is in fact a whole array
of torts including: negligence, deceit, trespass, conversion and detinue, nuisance, strict liability and defamation:
see Turner and Trone (2013, Ch. 28). Negligence and deceit were considered earlier in Module 3. Although the
scope and operation of tort law has proved especially troublesome, there is at least broad agreement on what this
branch of the law of obligations comprises (Baker et al. 2002, p. 11):
A tort can be defined as an act or omission by the defendant, constituting an infringement of an interest of the
plaintiff recognised by law as being worthy of protection against an infringement of that sort, created by an act or
omission of that sort, and giving rise to a right of civil action for unliquidated damages.

As noted in Module 2 and the above High Court judgment, actions in tort and contractthough frequently
relating to the one action, e.g., in commerceare legally distinct. In early UK cases such as Groom v Crocker
[1939] 1 KB 194 where there was a liability in contract, this was thought to prevent liability in tort as well. But
later Anglo-Australasian cases have unequivocally established that liability is generally concurrent; i.e., that
an aggrieved contractual party has a free autonomous choice of contractual or tortious remedies: Henderson
v Merrett Syndicates Ltd [1995] 2 AC 145; Astley v AusTrust Ltd [1999] HCA 6. Though issues such as what
effect contractual/tort exclusion clauses have, require consideration. In Australia, the proliferation and growing
costs of negligence actions (and insurance) over recent decadesespecially personal injury claimsfinally
prompted concerted legislative intervention. That followed a 2002 review chaired by Justice David Ipp which
recommended radical changes to available common law negligence actions.

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On completion of this module, you should be able to:
provide a short account of the origins of tort lawand negligence in particularand its interaction with
contract law
with reference to the cases of Donoghue v Stevenson and Wagon Mound Nos.12, outline how it is that
leeways of choice underpin the dynamics of common growth, and why the hazard of illusory reference
seemed to permit no limit to judgment in the evolution of the proximity test in negligence
detail the major types of tort imposed by the law of obligations in relation to recognised property,
contractual and statutory rights
set out the components of an actionable tort, e.g., negligent misstatement and apply that formula to standard
fact complexes
explain why statutory reform of tort law occurred in 20022003, outline the key operative provisions
of a representative statute, e.g., the Civil Liability Act 2003 (Qld) and show how it modifies the rights,
obligations and liabilities of parties in an array of standardised fact complexes.

Turner & Trone 2013
Ch. 28

Davenport & Parker 2012
Ch. 28

History and recent dynamics of negligence

As students will hopefully recall from Module two, there isas Atiyah (1986, p. 10) points outwithin the
broad law of obligations a fundamental distinction between, obligations which are voluntarily assumed, and
obligations which are imposed by law. The former constitute the law of contract, the latter fall within the
purview of the law of tort. To recap, tort is defined by Baker et al. (2002, p. 11) as, an act or omission by
the defendant, constituting an infringement or an interest of the plaintiff giving rise to a right of civil action
for unliquidated damages. Whilst the generalised components of an action in tort for negligence comprise: the
plaintiff owing the defendant a duty of care, that duty being subsequently breached giving rise to foreseeable
losses suffered by the plaintiff that arent too remote from the breach (see Turner and Trone 2013, p. 735).
The relationship between these two interrelated branches of the law of obligations has nonetheless been
troublesome. For example, liability in negligencethe most problematic areaacross a whole array of consensual
commercial and nonconsensual transactions, has vastly increased in the last 100 years. ChiefJusticeSpigelman
of the NSW Supreme Court addressed this issue in a 2002 conference paper, Negligence: The Last Outpost of the
Welfare State. Whilst, writing extrajudicially, Justice David Ipp (2003, p. 1) observed that:
Over the last 100 years there have been vast changes in the law of negligence. The law of negligence closely
reflects the social attitudes of people and as these change so, following some distance behind, does the law of
negligence. After all, as LordAtkin observed in Donoghue v Stevenson, the law of negligence is based on a general
sentiment of public wrongdoing. The pendulum has swung from a judiciary that, at the turn of the 19th century,
closely identified with defendants such as landlords, property owners and employer to one that, at the end of the
20th century, strongly sympathised with the claims of plaintiffs, broadly.

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In the following extract Professor Atiyah (1986, p. 41) insightfully draws attention to the intertwined modern
history of contract and tort law:
The modern law of negligence, is in many respects, an offshoot of nineteenth century contract law. Historically,
the tort of negligence which dominates modern tort law grew almost entirely out of contractual-type arrangements.
Personal injury actions brought against occupiers of premises, against employers, against railway companies were
the forerunners of the modern running-down case. The road accident between strangers was not the typical tortaction of the last century. And even today it remains true that nearly all tort actions arise in the course of voluntary
actions . It is of course that sharp distinctions drawn by the law between tortious and contractual liability have
over the years, led to various accretions of positive law. In particular, contractual liability is often stricter than
tortious liability. The seller of defective goods is liable even without proof of negligence for any injury cause by
the goods to someone who can claim that he has contracted to buy them.

In recent cases, the High Court has been re-stressing the autonomy of the individual and that in commercial
transacting, contract lawand not tortshould take priority in fixing the scope of rights and duties between
parties since it offers them ample opportunities to pursue and protect their commercial interests: Woolcock Street
Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16. Earlier, in Perre v Apand Pty Ltd [1999] HCA 36, McHugh J
(at para. 115) said that:
As long as a person is legitimately protecting or pursuing his or her social or business interests, the common law
will not require that person to be concerned with the effect of his or her conduct on the economic interests of
other persons And that is so even when that person knows that his or her actions will cause loss to a specific
individual. Thus, a consumer owes no duty to a trader not to cause loss to that person by withdrawing custom.

In Woolcock, first the High Court emphatically rejected an extension of the ratio in Bryan v Maloney (1995)
182 CLR 609 concerning residential houses, to commercial buildings. Then secondly, the judgesKirby
J dissentingrejected a claim in tort by the subsequent purchasers of a commercial building with faulty
foundations which they alleged was the fault of the original consulting engineers who designed them (even
though the original owner rejected their advice to have more robust foundations). McHugh J said (at para. 96):
The first owners and subsequent purchasers of commercial buildings are usually sophisticated and wealthy
investors who are advised by competent solicitors, accountants, architects and valuers. In the absence of evidence,
this Court must assume that the first owner of commercial premises is able to bargain for contractual remedies
against the builder. It must assume also assume that a subsequent purchaser is able to bargain for contractual
remedies from the vendor of the premises.

Justice McHugh neatly demonstrated how initial and subsequent building owners could easily protect
their financial interests by inclusion of the appropriate terms including warranties into simple contracts or
construction contracts made under deed.
First, subject to express terms, an ordinary building construction contract contains implied terms that the work
will be properly carried out with suitable materials, and similar contracts can be entered into with other parties
supplying design work etc. And to get around the relevant limitation period (subject to statutory override) the
contracts can be made under deed. Secondly, where sub-contractors are involved, the the prudent principal
should enter into collateral contracts with them that include appropriate warranties. In any event, under the
standard Australian construction contract (AS40001997) the builder has a duty to supervise subcontractors
and is liable for their acts, defaults and omissions. Thirdly, on the subsequent sale of the building, the purchaser
can insist the simple contract or deed under seal contains warranties about the buildings condition and lack
of hidden or latent defects. In this way, the interests of the initial and later owners can be easily protected
under standard contract law provisions, and the hazards of relying on tort law remediesoften decades after
constructioncan be largely avoided.
We can conclude from Woolcock that in an Australian commercial setting where parties are autonomous and
quite able to look after their own interests, the courts will expect them to do so and will be reluctant to bend or
extend existing tort law remediesnegligence especiallyto assist them. In Perre v Apand Pty Ltd [1999] HCA
36, the High Court was equally insistent that except for a narrow range of exceptions there was no liability for
foreseeable pure economic loss.

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In summary, regarding tort-contract interaction, first, by operation of law theres an implied term of reasonable
care in a contract of professional services for which the promisee gives consideration. Thus as Gleeson CJ et al.
usefully observed in Astley v AusTrust Ltd at paras. 4748 (see Turner and Trone 2013, p.734 on this point):
Persons who give consideration for the provision of services expect that those services will be provided with
due care and skill. Reliance on an implied term giving effect to that expectation should not be defeated by the
recognition of a parallel and concurrent obligation under the law of negligence.

Secondly, the starting point in examining the prospective scope of any duty of care in tort and issues of
negligence is, the terms and scope of any relevant contract between the parties: Voli v Inglewood Shire Council
[1963] HCA 15; Hawklins v Clayton [1988] HCA 15; Woolcock Street Investments Pty Ltd v CDG Pty Ltd
[2004] HCA 16.
Thirdly, prospective liability in Australia, independent of contract, via the duty of care in tort law for foreseeable
property, financial and/or purely economic loss (besides trespass and private nuisance) is now subject to an
application of increasingly strict rules following Perre v Apart Pty Ltd [1999] HCA 36 as applied in e.g.,
Johnson Tiles v Esso Australia [2003] VSC 27 and enactment in 2002/3 of parallel state legislation e.g. the Civil
Liability Act 2003 (Qld).
Fourthly, though much criticised and now supplemented by (i) the more detailed, rigorous five part threshold
rules articulated in Perre v Apand Pty Ltd [1999] HCA 36 and (ii) comments in Woolcock Street Investments
[2004] HCA 16 restressing the autonomy of the individual, the Donoghue v Stevenson [1932] AC 632
neighbour principle can still govern physical/causal proximity based negligence liability for omissions and
related financial losses (akin to pure economic loss). In this manner, the Donoghue v Stevenson duty of care
or neighbour principle was applied by Gleeson CJ & Gummow J in Punteriero & Anor v WAMC [1999] HCA
45 to foreseeable damage to property (a potato crop damaged by chemicals in water supplied under statute, via
contract) and, was none the worse for it (p.11). While in Johnson Tiles v Esso Australia [2003] VSC 27 at
p.130, Gillard J said that:
In my opinion, whether or not Esso owe a duty of care to any party who suffered property damage, depends upon
the application of the Atkinian formula. This involves the questions of reasonable forseeability of injury and
proximity. The test of reasonable foreseeability concentrates on the knowledge that the defendant had or ought to
have had of the victim and the potential for harm.

Fifthly, financial loss sustained resultant on physically proximate damage to property isnt a strictly pure
economic loss, with liability capable of being fixed under the same broad Atkinian formula. And sixthly, while
property-related liability may also arise under the torts of private nuisance and trespass as canvassed below, the
modern reconfigured action in negligence has somewhat overshadowed these and replaced the now obsolete
strict liability Rylands v Fletcher (1866) based action for unnatural use of land occasioning loss: Burnie Port
Authority v General Jones Pty Ltd (1994) 179 CLR 520.

Negligence: leeways of choice or no limits to judgment?

Since our primary concern in this Module is the tort of negligence, it is a very useful exercise in reliance upon
Professor Julius Stones (1985) analytical framework and approach to case development, to see how the tort of
negligence expanded through the leeways of choice that judges have in their application and restatement of
ratio decidendithe binding part of precedent.
Modern negligence law largely has its origins in Lord Atkins judgment in Donoghue v Stevenson [1932] AC 632
in which he outlined the neighbour or proximity test. However, this test is stated in circular, question begging
termsthe question being reframed rather than answeredwhich Professor Stone terms a category of illusory
reference and defines in these terms:
A legal proposition apparently available must be recognised as having an illusory reference, as giving no
intellectual guidance and therefore setting no limit to judgment, when either, (1) it consists of a distinction without
a difference, or other category of meaningless reference, or (2) it consists of a category of circular reference. (Stone
1986, p. 74)

Module 7 - Page 112

He clearly demonstrates this in an analysis of the Donoghue case:

Question: To whom do I owe a duty to take care? Answer: To my neighbour. Question: Who then are my
neighbours? Answer: They who are so closely and directly affected by my act or omission that I ought to have
them in contemplation when I act or fail to act The argument when we sort it out nevertheless includes a
circularity. This is because after the sense of increased understanding has been stirred by the neighbour symbol,
the question still remains to be answered: who then is my neighbour Yet [when addressed] does this answer
really tell us more than that we owe a duty to take care when we ought to take care . It must here be added that
this circular category is merely one of a complex network of illusory categories which enmesh the contemporary
law of negligence. The lawyers resort to circular categories is but a manifestation of the tendency of us all to cover
over with words our discomfort with too hard questions. (p. 66)

Secondly, in the process of the broadly stated neighbour test in Donoghuea key example of an illusory reference
legal testbeing applied, it expanded so that various competing versions of the proximity test developed. For
example, the duty situation test: imposed a duty only if the defendant also stood in a legal relation to the plaintiff,
such as trustee, or lessor, or custodian, or some other relation (p. 64). And yet a third version was adopted in
the case of Dorset Yacht [1970] AC1004. The duty situation test was that, even where no such duty situation has
yet been held to arise, it is still open to the instant court to determine, as a matter of policy, whether circumstances
falling within Lord Atkinss neighbour (or proximity) test give rise to a duty (p. 64).
In this way, Australian courts have over the years developed and debated upon various versions of the proximity
test which as Baker et al. (2002, pp. 85) note, entails either; physical, circumstantial or causal proximity or a
combination of these and is a question of law to be decided three basesthe facts of the case, what is fair and
reasonable, and policy considerations.
Its scopeconsistent with Stones account of the dynamics of common lawwas revisited in key cases
including Wagon Mound No 1 [1961] 1 All ER 404 and Wagon Mound No 2 [1966] 2 All ER 709two cases
originating from New South Wales, heard on appeal by the Privy Council. They concerned spillage of oil into
Sydney harbour by engineers from a ship, the Wagon Mound, which due to lack of attention over 23 days
travelled some distance to Morts dock. Sparks from welding work on the docks ignited the oil and which
then damaged the dock and a ship. The first case concerned an action in negligence by the dock owner and the
second, by the owners of a ship undergoing repairs at the wharf, against the party responsible for the oil spill
the Wagon Mounds owners. As Stone explains, the plaintiffs in Wagon Mound No 1 failed because on appeal the
Privy Council held that it wasnt foreseeableit was such a remote possibilitythat oil on the surface of sea
water would ignite as it in fact did. But then in the following caseinvolving a review of existing negligence
law principlesthe ratio was stated in terms of both liability and remoteness. There was agreement in both
these cases on the following material facts:
1. that Morts Dock, before they engaged in welding operations, had sought advice and were advised that it was
safe to proceed
2. that there was no certainty how the oil was set alightpossibly by hot metal falling on floating waste material
3. that clearly the defendants (the Wagon Mounds) engineers were careless in allowing the major oil spillage of
oil over the water
4. that the oil thus spilled was in fact set alight and that the damage to the plaintiffs dock directly resulted from
this fire.
(Stone 1985, p. 141)

Also, given agreement that there was a duty and that it was breached, the deciding third legal issue test was one
of remoteness: was the fire a remote occurrence or a direct consequence? If it applied Re Polemis [1921] 3 KB
560, there was liability for all the direct consequences of a negligent act. But in the Wagon Mound No 1, the
Privy Council adopted an earlier stricter competing version of the Re Polemis directness rule of foreseeability
of the damage: what was necessary in order to produce liability under it for the particular damage was not only
the foreseeability of any damage to the plaintiff, but the foreseeability of the particular kind (and also degree) of
damage to the plaintiff (p. 142).

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But then in Wagon Mound No 2, the Privy Council took a different approachbased on Bolton v Stone [1951]
1 All ER 1078to the foreseeability/or remoteness issue, apparently consistent with Re Polemis. An action in
negligence required consideration of these elements:
1. the degree of the culpability [wrongfulness, illegality] inherent in the defendants activity
2. the gravity of damage which may result from it
3. the proximity (or statistical probability) of the risk that such damage will occur [in other words, reasonable


4. the cost and difficulty of measures which would be required to eliminate or forestall the risk.

What a reasonable man should foresee depended, therefore, they said, on the cumulative interaction and balance
between all these elements. (p. 144)
Incidentally, in the 200203 reform of tort law, the first elementcriminal behaviourof a claimant in tort can now
prevent civil liability from arising in relation to the breach of duty: see, e.g., s. 45 Civil Liability Act 2003 (Qld).
So, on an application of these principles since the original spill was unlawful and was then left unattended for
several days, the defendants should have considered the seriousness of damage if a fire broke out. And even
though that was a statistically remote possibility, it was nonetheless foreseeable. In which case, the defendant
was liable for damage the oil fire did to another shipresulting from an illegal spill which unattended for some
time threw up the distinct though remote chance of it catching alight and engulfing nearby property. The most
risk adverse response by the Mort Dock owners would have been to suspend work until the oil spillage was
contained and then to have sued the Wagon Mounds owners for pure economic loss.
It is not hard to see then how competing versions of the elements of the Wagon Mound No 2 four part verbal
formula might then developignoring for now the alternate duty situation testand especially, how difficult it
would be for the courts to thereafter consistently apply the four variably interacting elements of the negligence
test. Courts then would have numerous leeways of choice in applying the four part test and especially the notion
of reasonable foreseeability (proximity) and which Stone therefore describes as another example of illusionary
reference with no limit to judgment. The problems with and indeterminate nature of the proximity test were recently
acknowledged in a unanimous judgment by the High Court in Sullivan v Moody [2001] HCA 59, at para. 48:
As Professor Fleming said [21] no one has ever succeeded in capturing in any precise formula a comprehensive
test for determining whether there exists, between two parties, a relationship sufficiently proximate to give rise to
a duty of care of the kind necessary for actionable negligence. The formula is not proximity. Notwithstanding
the centrality of that concept, for more than a century, in this area of discourse, and despite some later decisions in
this Court which emphasised that centrality [22], it gives little practical guidance in determining whether a duty of
care exists in cases that are not analogous to cases in which a duty has been established [23]. It expresses the nature
of what is in issue, and in that respect gives focus to the inquiry, but as an explanation of a process of reasoning
leading to a conclusion its utility is limited.

So what is replacing proximity as a not so bright line test? The courts seem to be using a variant of the Wagon Mound
No 2 four-part interactive formula. For example, in Perre v Apand Pty Ltd [1999] HCA 36a case concerning pure
economic lossMcHugh J set out five principles relevant to in determining whether a duty existed.
reasonable foreseeability or loss
indeterminacy of liability
autonomy of the individual
vulnerability to risk and
knowledge of the risk and its magnitude.

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Statutory reform measures in 20022003 as considered below, broadly adopted a similar formula: see s. 9.
Civil Liability Act 2003 (Qld). Justice McHugh later applied that test in Woolcock Street Investments Pty Ltd v
CDG Pty Ltd [2004] HCA 16, a case discussed above concerning alleged professional negligence where there
was no direct contractual between the firm of engineers and subsequent owner of a commercial building, i.e., a
foreseeable third party. According to McHugh J, where a contract exists, however, the concepts of assumption
of responsibility and reliance may create a duty of care in tort as well as obligations in contract (at para. 112).

Breaches of property, contractual or statutory rights

Under the law of obligations, the common lawas amended, supplemented or negatived by statuteimposes
minimum standards of care and liability on individuals in many situations that have the common feature of what
economists would describe as imposing negative externalities on the property and contract rights of others.
The main individual common law torts (besides statutory torts too) ignoring the personal torts of assault, battery
and false imprisonments, are: trespass to land, goods or personalty, fraud or deceit, and negligent acts or misstatements. Remedies are, of course, important where a tort has occurred. There are two main remediesactions
for damages and/or an injunction, to stop ongoing wrongs. In tort, damages are awarded to compensate the
wronged party for the injury sustained. Whilst a prohibitory injunction is a court order stopping the defendants
tortious acts; and a mandatory injunction orders the defendant to positively act so as to prevent a continuation of
the tort (Baker et al. 2002, pp. 2223).


Trespass against real property, goods and personalty

It is an error to think that the three actions of trespass, nuisance and negligence in relation to real property coalesce
into the universal tort of negligence. They remain distinct. At common law, a trespass to land is a physical act
done directly to the plaintiffs land rather than indirect consequential damage: Read v Lyons & Co Ltd [1946] 2
All ER 471; Southport Corporation v Esso Petroleum Co Ltd & Ors [1954] 2 All ER 561. The essence of the tort
of nuisance is, a tort directed against the plaintiffs enjoyment of his rights over land [real property rights] an
action of private nuisance will usually be brought by the person in actual possession of the land affected, either as
the freeholder or tenant of the land in question, or even as a licensee with exclusive possession: Hunter v Canary
Wharf Ltd [1997] 2 All ER 426, per Lord Goff at p. 435. Real property rights nuisance is divisible into public
and private nuisancethe latter being of three kinds: (1) nuisance by encroachment on a neighbours land; (2)
nuisance by direct physical injury to a neighbours land; and (3) nuisance by interference with a neighbours quiet
enjoyment of his land, per LordLloyd in Canary Wharf at p. 441. However, as Lord Goff noted in the Canary
Wharf case, many types of adverse land-use do not give rise to private nuisance. These include the right of a person
to build on their land (subject to planning controls, and/or restrictive covenants or easements) in such a way that
interferes with neighbours enjoyment of their land by: spoiling their view; restricting the flow of air; taking light
away from land/buildings; causing general electrical interference or television reception interference especially in
this era when cable and satellite television are available in urban areas.


From strict liability to liability in negligence for the unnatural use of real property: Rylands v
Fletcher vs Burnie Port Authority

Rylands v Fletcher (1866) LR 1 Ex 265 imposed what was regarded as strict liability (i.e., not requiring
negligence) in tort for the unnatural use of land. The application of this tort remedy expanded thereafter, proving
very useful, for example, against local and state government authorities in their management of publicly accessible
land. However, the combination of recent cases in the UK (Cambridge Water Company Ltd v Eastern Counties
Leather plc [1994] 1 All ER 53) and Australia (Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR
520) has seen the proposition of strict liability for which Rylands v Fletcher was supposedly authoritative,
drastically reinterpreted to generally require an element of fault, i.e., negligence. In Burnie Port Authority, the High
Court imposed a flexible standard of care on activitiesthe more dangerous they were, the higher the standard
required and which in the case of an ultra-hazardous undertaking, could approximate strict liability:

Module 7 - Page 115

it should now be seen for the purposes of the common law of this country as absorbed by the principles of
ordinary negligence. Under those principles, a person who takes advantage of his or her control of premises to
introduce a dangerous substance, or carry on a dangerous activity, or to allow another to do one of those things,
owes a duty of reasonable care to avoid a reasonably foreseeable risk or injury to the person or property of another.
(pp. 556557)

In a similar manner, tortious liability arises from the wrongful interference with, possession or unauthorised
dealing (conversion) in relation to chattels personalbeing a chose in possessionheld by another person or
legal entity. Similar wrongful dealing with or financial injury caused to intangible personal property, i.e., choses
in action is also actionable in tort. And since many assignable property-type rights arise under statute nowadays,
unlawful interference with those rights comprises an actionable tort as well. For example in Van Son v Forestry
Commission of New South Wales (1995) LGERA 108, the defendant was liable for breaching the statute and
common law-based riparian rights of Ms Van Son which she relied upon to take water for her household use.


Fraud or deceit: wilful misrepresentation

This type of tort was examined in Module 4, since where it occurs in relation to the terms of a contract it
deprives it of properly informed mutual consent or consensus ad idem. As Atiyah (1986, p. 275) observes,
the law relating to misrepresentation occupies a hazy and undefined area generally thought to lie along the
boundaries of tort and contract. There arebesides statutory remediessix common law legal remedies for
misrepresentation (excluding innocent misrepresentationactionable under the Competition and Consumer Act
2010 (Cth), the CCA 2010):
the action for deceit
the action for damages for negligent misrepresentation
defence to an action for breach of contract
rescission of a contract
damages for breach of warranty
The first two require proof of fraud or negligence, while 35 dont, imposing strict liability and in many cases,
estoppel wont require proof of fraud or negligence (Atyiah 1986, pp. 316319).
A fraudulent misrepresentation is a false representation made by a person who at the time of making it had no
honest belief in its truth. If the representor does believe that his representation is true, no action for fraud can be
maintained, even if the representor was negligent in holding that belief: Derry v Peek (1889) 14 App Cas 337
(HL). Depending on whether the fraudulent misrepresentation is a term of the contract, the innocent may rescind
the contract and obtain damages in tort or pursue the standard contractual remedies for breach of that term.
Whilst the Competition and Consumer Act 2010 (Cth) now imposes stricter standards of commercial conduct
and liability for failure to comply with those standards.
In tort, damages, including consequential losses will be awarded to restore the injured party to the status quo
ex ante: the position they would have been in had the tort not occurred. Fraud can be difficult and expensive
to prove. However it remains not uncommon in commerce and an unnecessary impost on honest business. The
Italian multinational Parmalats shaky financial trading position was finally brought undone by the discovery
that a letter guaranteeing that it had over UD$ 4 billion in a US Bank account, was a fraud.

Module 7 - Page 116


Negligent misstatement

For a detailed discussion of this major tort, see Turner and Trone (2013) from para. 28.260.
Since Hedley Bryne v Heller & Partners Ltd [1964] AC 465, this has been a major growth area of tort law
since it addresses the issue of professional competence in relation to the creation, generation and dissemination
of informationgratuitously to a third party or directlya core activity of most professional businesses. In
other words damages arising by way of pure economic loss for careless words. In Hedley, Bryne an advertising
agency inquired from the bankers of its client Easipower, as to its creditworthiness. The Bank replied somewhat
cryptically as followsand with a disclaimer of responsibility. Unfortunately its advice was ill-researched and
Hedley lost 17,000, as a result of which it sued the Bank.
For your private use and without responsibility on the part of this bank or its officials.
Dear Sir,
In reply to your inquiring letter of 7th instant we beg to advise: Re Easipower Ltd. Respectably constituted
company, considered good for its ordinary business engagements. Your figures are larger than we are accustomed
to see.
Yours faithfully,
Heller & Partners Ltd.

In Hedley Bryne, Lord Reid offered the following rationale for imposing liability for statements even made
gratuitously to a party:
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.

Thus the Bank was held to be legally liable for its poorly considered albeit gratutious advice, and but for its express
exclusion of liability in tort (there was no contract) would have been ordered to pay damages to Hedley Bryne.
The level of care to be adhered to by professionalsin undertaking actions governed by contract, tort, statute
or otherwiseis now defined in section 22 of the CLA 2003 with reference to the standard of competent
professional practice.


Economic/business torts: inducement, intimidation and conspiracy

This is a fairly loose term covering a variable range of actionable torts. The golden thread here is, arguably, that
in a fairly limited set of circumstances, the law imposes liability for damage caused by intentional interference
or meddlesome behaviour in relation to the lawful business or other activities of a person or entity, or their
proprietorial interests: Northern Territory v Mengel (1995) 129 ALR 1. It also extends beyond property rights
strictly speakingbeing rights in remto rights under contractrights in personam. Although the matter has
excited some controversy, the Rights of A to have B perform a contract, whilst a bare right in rem between them,
is considered a quasi-property right if unlawfully interfered with by a third party, C and therefore actionable as
a tort: Lumley v Gye (1853) 118 ER 749; Attorney General for NSW v Perpetual Trustee Co Ltd (1952) 85 CLR
237; Zhu v The Treasurer of the State of NSW [2004] HCA 56.

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This collection of torts has been extensively relied upon by employers against trade unions in industrial disputes
and boycotts: e.g., Taff Vale Railway Co. v Amalgamated Society of Railway Servants (1901) AC 426; .[1991]
1 VR 637. As Baker et al. (2002, p.192) explain, there are three types of circumstances where an action in tort
for economic loss is possible:

cases where the defendant is dishonest or acting out of an improper motivethese are the torts of deceit,
injurious falsehood, and conspiracy by the use of unlawful means

cases where the defendant has inflicted loss through the use of unlawful meansthese are the torts of
intimidation, use of unlawful means and conspiracy to use unlawful means

cases of the wilful violation of a rightthe Lumley v Gye tort of inducement of a breach of contract, or
the appropriation of an intellectual property right such as the tort of passing off.

In Lumley v Gye (1853) 118 ER, a rival theatre owner was held liable in damages for persuadinginducingan
opera singer Joanna Wagner to breach her contract to perform at the plaintiffs theatre. The basis of this action is
that, as Isaacs J said in Short v City Bank of Sydney (1912) 15 CLR 148 at 160:
the defendant must have induced or procured the doing of what he knew would be a breach of contract. A bona
fide belief reasonably entertained that it was not a breach of contract would be fatal to the claim. If the defendant
did not know of the existence of the contract, he could not induce a breach; if he reasonably believed it did not
require a certain act to be performed, his inducing a party to the contract to do something inconsistent with it could
not be regarded as an inducement or procurement knowingly to break the contract; if he believed on reasonable
grounds that the contract had been rescinded, or performance waived, when in fact it had not, he could not be said
to knowingly procure its breach. (cited in Speedworx Pty Ltd v Bunbury Car Club (Inc) & Ors [2005] WASC 16,
per Master Newmes at 4.)

Tszyu v Fightvision Pty Ltd & Anor [1999] NSWCA 323 concerned a TV company inducing the boxer Kostya
Tszyu to breach an exclusive three year worldwide promotional contract (with two year extension option) he had
with William Mordey. The NSW Court of Appeal in effect held the TV firm SkyChannel liable for $7million in
damages to Mordey for having induced Tszyu to breach his binding contract with Mordey.
The tort of unlawful interference with contractual relations was also successfully relied upon in the more
complicated case of Zhu v The Treasurer of the State of NSW [2004] HCA 56. In March 1999, in the lead-up to
the Sydney Olympics, Peter Zhu, a Chinese migrant and Australian citizen obtained an agreement with TOC
Management Services Pty Ltd to sell memberships in an Olympic Club to residents of China. Then in November,
the NSW Governments Olympic entity, SOCOG, persuaded TOC to terminate its contract with Zhu on the
alleged grounds he was a loose cannon and was making unauthorised use of its Olympic logos and symbols.
They apparently then had the NSW Police arrest him. He was held in NSW Police custody for 12 hours.
The High Court held on appeal that SOCOG has no statutory rights, superior rights under common law or
other justification to meddle or interfere with the TOC-Zhu contract and reinstated the orders of the original
trial judge Bergin J in which she had awarded judgment against SOCOG for $4,234,319 including $95,000
in aggravated damages relating to his wrongful arrest, and $200,000 in exemplary damages due to SOCOGs,
high-handed and reprehensible behaviour in relation to all three interferences (per Gleeson et al. at para. 4).
SOCOG was also strongly criticised for having refused to deal with Zhu in good faith and having wasted as a
result 20 days of judicial time in the original hearing, besides its appeal to the NSW Court of Appeal.

Recent statutory reform

As noted in the Introduction, following the 2002 review chaired by Justice David Ipp that recommended reform
of available common law negligence actions, concerted legislative action was taken across Australia, the
Queensland Governments response in 2003 being representative: Civil Liability Act 2003 (Qld)CLA 2003.
See Turner (2011, para. 28.80) for an account of these important changes to common law principles. While
especially aimed at curbing personal injury claims, the CLA 2003 has a much wider operation: see Turner and
Trone (2013, para. 28.80).

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The CLA 2003 binds all persons including the Crown and governs standards of care in relation to contract,
under statute and tort as well. It doesnt apply to a specified list of statutory regulated work-related physical
injuries, or create any causes of action or codify the law, override any other relevant statutory provisions other
than in the area of contributory negligence or prevent parties from expressly contracting out of or modifying
the operation of the Act concerning their rights, obligations and liabilities. But presumably since it reduces
the scope of liability, most insurers providing cover to commercial firms would be insisting that the opt out
provision of the CLA 2003 wasnt exercised.
What it does do is to narrow the standard of care owed, set out principles about causation, the voluntary
assumption of risk, the nature of the duty of professionals, contributory negligence and the effect of criminal
In the definition section (Schedule 2 Dictionary), duty is stated as meaning:
(a) the duty of care in tort or
(b) a duty of care under contract that is concurrent or coextensive with a duty of care in tort or
(c) another duty under statute or otherwise that is concurrent with a duty of care mentioned in paragraph (a) or
While duty of care means a duty to take reasonable care or to exercise reasonable skill (or both duties). The
CLA 2003 set out the verbal formula of the standard of care in section 9:


General principles
1. A person does not breach a duty to take precautions against a risk of harm unless:
(a) the risk was foreseeable (that is it is a risk of which the person knew or ought reasonably to have known)
(b) the risk was not insignificant and
(c) in the circumstances, a reasonable person in the position of the person would have take the precautions.
2. In deciding whether a reasonable person would have taken precautions against a risk of harm, the court is to
consider the following (amongst other relevant things):
(a) the probability that the harm would occur if care were not taken
(b) the likely seriousness of the harm
(c) the burden of taking precautions to avoid the risk of harm
(d) the social utility of the activity that creates the risk of harm.

This seems to be a composite of the four part test in Wagon Mound No.2 and JusticeMcHughs five principles
in Perre v Apand Pty Ltd [1999] HCA 36 as discussed above. Then in sections 1112, the CLA 2003 set out the
operative principleswith expression inclusion of a policy principleto govern the critical issues of causation
and proof:

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11. General principles

1. A decision that a breach of duty caused particular harm comprised the following elements:
(a) the breach of duty was a necessary condition of the occurrence of the harm (factual causation)
(b) it is appropriate for the scope of the liability of the person in breach to extend to the harm so caused (scope
of liability)
2. In deciding an exceptional case, in accordance with established principles, whether a breach of dutybeing a
breach of duty that is established but which cannot be established as satisfying subsection (1)(a)should be
accepted as satisfying subsection (1)(a), the court is to consider (amongst other relevant things) whether or not
and why responsibility for the harm should be imposed on the party in breach

12. Onus of proof

In deciding liability for a breach of a duty, the plaintiff always bears the onus of proving, on the balance of
probabilities, any fact relevant to the issue if causation.
And finally s. 22 specifies the operative Standard of care for professionals:
1. A professional does not breach a duty arising from the provision of a professional service if it is established
that the professional acted in a way that (at the time the service was provided) was widely accepted by peer
professional opinion by a significant number of respected practitioners in the field as competent professional
2. However, peer professional practice cannot be relied on for the purposes of this section if the court considers
that the opinion is irrational or contrary to a written law . [35].

In other words, the CLA 2003 restricts liability to reasonably foreseeable, not insignificant remote risks of the
sort that attracted liability in Wagon Mound No. 2. Applying sections 912 CLA 2003 to the facts in Wagon
Mound No.2 would seem to prevent the ship owners being held liable for the damages resulting from a very
remote event despite the illegality of the spill and their slack response in stopping it spreading.
It is indeed difficult to take precautions (and affordable insurance) against risks youre not aware of or are
so improbable they should sensibly be ignored especially if the cost of minimising them isnt economically
feasible. To otherwise impose liability in tort in such cases, is to aid the imperial march of contract law,
incorporating its standard of strict liability for the performance of voluntary assumed undertakings into
obligations imposed by law.

Atiyah, PS 1986, Essays on contract, Clarendon Press, Oxford.
Baker, CD, Gibson, A, Corbin, L & Blay, S 2002, Torts law in principle, 3rd edn, Law Book Co, Sydney.
Ipp, D 2002, Negligencewhere lies the future?, viewed 13 May 2005,
Stone, J 1985, Precedent and law: dynamics of common law growth, Butterworths, Sydney.
Turner, C and Trone, J 2013, Australian commercial law, 29th edn, Thomson Reuters, Sydney.

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