Interrelationship between Contract and Tort Law

In The Cases Of The Wagon Mound And Hadley V Baxendale, How Did Their Outcome Affect The Law On Remoteness And Create An Interrelationship Between Contract Law And Tort Law

In regards to the law of Contract and the law of Tort there has become a clear overlapping of the two. This distinct interrelationship between the two types of law is due to the key factor of the evaluation of the remoteness of damages. Both laws express awarding the damages to the claimant “where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation with respect to damages, as if the contract had been performed”.

This rule is in compliance to what the Plaintiff knew at the time of the breach and what was foreseeable in accordance to the damage caused.

Before the cases of the Wagon Mound and Hadley v Baxendale courts followed the rulings of Re Polemis which caused the two different laws to overlap as it dealt with contractual and tortuous issues. This further led onto difficulties in other cases when it came to application of principle.

The outcome of the Re Polemis case it was in favour of the respondants, however with the outcome came criticism from the final judgements. In the case Manning J stated that in consequence to the decision:

“To say that the problems, doubts and difficulties which I have expressed above render it difficult for me to apply the decision in In re Polemis with any degree of confidence to a particular set of facts would be a grave understatement. I can only express the hope that, if not in this case, then in some other case in the near future…”

Failure for Re Polemis to be successfully applied to future cases due its wide scope of contractual and torious issues, led to the reasonable tests being created from the cases of Hadley v Baxendale and The Wagon Mound. In the case of Liesbosch, Dredger v. Owners of S.S. Edison, Lord Wright explained that the reason for the change in remoteness was due to that

“Polemis was limited in its scope to immediate physical consequences of negligence”.

Although there is an interrelationship between contract and tort, in the tortuous element of remoteness the central point is on the foreseeability of the damage sustained before it took place whereas the contractual element focuses on the severity and extent of the loss after the act in an economic loss aspect.

With the tortuous element depending upon the circumstances of the case, if a tort occurs under a contract then the obligations owed under the duty of care will be wider when compared to the contractual obligations.

As I previously stated Re Polemis was relied upon in the cases mentioned however in the cases of Overseas Tankship (UK) v Morts Dock and Engineering Co Ltd (The Wagon Mound 1961). However, in the judgement of Overseas Tankship (UK) v Morts Dock and Engineering Co Ltd, The Wagon Mound 1961 Viscount Simmonds LJ highlighted upon the need for no longer following Re Polemis:

“It is a principle of Civil Liability… that a man must be considered to be responsible for the probable consequences of his act… for it is asked why a man should be responsible for the natural or necessary or probable consequences… but because the reasonable man… out to have foreseen them.”

As in respect to the previous quote before the reform arising from Re Polemis reasonable damage and remoteness a person could be found guilty of any damage sustained regardless of its extent or if the damage itself was foreseeable or not.

The constraints of the application of Re Polemis to the Wagon Mound Case was that if followed through it would have led to an unfair disadvantage to the defendants as they would be held liable for all of the damage even with the fact that managing director at the time, aware of the danger sought out advice before proceeding.

A complete evasion of what could only be described as an ‘ambiguous absurdity’ in Re Polemis law was in order to as described by Viscount Simmonds LJ to bring hope “…that the law will thereby be simplified and that, in some cases at least, palpable injustice will be avoided.”

In order to avoid such an unjust decision being made there was a creation of what is now known as the “Wagon Mound” Rule.

This rule compiles of now the crucial element of reasonable foresight of the damage sustained. It also takes into consideration the inability to foresee the way the damage came about or the severity of the damage suffered. However with this test that the damage it that of a type that can be foreseen in that particular circumstance.

One important advantage of the reform is that there is no longer any rigidity in its application to different circumstances than the previous ‘directness’ principle from Re Polemis. As I stated previously the old law of Polemis led to the possibility of unjust sentences but with the Wagon Mound Rule this possibility has been eradicated as liability is based upon fault.

Nevertheless with the advantages come the disadvantages also. Although the Wagon Mound Principle is broadly used it has been criticised for its risk element in reflection to the first negligence stage of duty owed. However with such a criticism it can be counter argued that foreseeability has an influence on the entirety of the negligence (Caparo) test.

On the other side of remoteness there is the contract interpretation of it as I already explained the case of Re Polemis caused there to be both tort and contractual issues. To avoid any possibility of confusion when dealing with future cases their lordships referred to the testr in contract as being ‘reasonable contemplation’ whereas tort is referred to as ‘reasonable foreseeability.

Another distinguishing factor between the two laws is that although both involve obligations and damages rewarded, a contractual breach requires a higher proximate relationship between the two involved parties in order to prove the breach successfully.