TORT 100 Tort and Contract Concurrent Liability Exclusion Clauses and Damages — Law of Torts Notes for Judiciary

Tort and Contract: Concurrent Liability, Exclusion Clauses, and the Different Measures of Damages and Remoteness

The classical distinction is that a contractual duty is fixed by the parties and owed to the other party to the agreement, while a tortious duty is fixed by law and owed to persons generally. The distinction is real and it governs the measure of damages, the rule of remoteness, the limitation period and the question of privity. What it does not mean is that the two are mutually exclusive. Henderson v. Merrett Syndicates settled that a duty in tort may arise alongside a contractual duty on the same facts, and that the plaintiff may choose the more advantageous remedy.

The six differences, concurrent liability, how the contract still controls, and when each claim is preferable

1. The Six Differences

	Contract	Tort
The source of the duty	Fixed by the parties themselves, by agreement	Imposed by the law, independently of any agreement
To whom it is owed	To the other contracting party	To persons generally, or to a defined class
Consent	The duty rests on agreement and cannot arise without it	The duty binds whether or not the defendant consented to it
Privity	Only a party to the contract may sue upon it	A duty may be owed to a person the defendant has never met
The measure of damages	Expectation: to put the plaintiff in the position he would have occupied had the contract been performed	Restitutio in integrum: to put him in the position he would have occupied had the wrong not been committed
Remoteness	Hadley v. Baxendale: loss arising naturally from the breach, or in the reasonable contemplation of the parties at the time of contracting	The Wagon Mound: damage of a kind that was reasonably foreseeable at the time of the breach of duty

The difference in the measure is the most practically important. Contract gives the plaintiff the benefit of the bargain; tort restores him to the status quo ante. Where a valuable contract has been broken the first is far larger; where the plaintiff has been induced into a bad bargain the second may be.
The difference in remoteness cuts the other way. Contract remoteness is judged at the time of contracting, and is confined to what the parties contemplated; tort remoteness is judged at the time of the breach, and covers any damage of a foreseeable kind. Tort remoteness is therefore generally the more generous.
Limitation differs too. In contract time runs from the breach; in tort from when the damage occurs, which may be much later: TORT 097.

2. Concurrent Liability

📖 Henderson v. Merrett Syndicates Ltd. [1995] 2 AC 145

Facts Names at Lloyd's of London, who bore unlimited personal liability, sued the underwriting agents who managed their syndicates for negligent management after catastrophic losses. Some of the names had a direct contract with the managing agents and some, being members of sub syndicates, did not. The question arose whether a duty of care in tort could be owed where the relationship was governed by a contract.

Held A duty of care in tort was owed, concurrently with the contractual duty where one existed.

Ratio Lord Goff rejected the proposition that a tortious duty cannot exist where the parties are in a contractual relationship. The law of tort is the general law, out of which the parties may contract. A tortious duty founded on an assumption of responsibility in the Hedley Byrne sense may arise even where the services are rendered under a contract, and the two obligations may exist concurrently. Where they do, the plaintiff may choose the remedy more advantageous to him, which in that case was the longer limitation period available in tort. The court must, however, enquire whether the tortious liability is excluded by the contract because the contract is inconsistent with it.

The tortious duty is not imposed on the contract but exists alongside it. The contract does not create the tortious duty and does not by its mere existence destroy it.
Mere coexistence is not inconsistency. A contract that says nothing about tortious liability does not exclude it.
The doctrine is of most practical use where the contractual claim has become time barred, or where the plaintiff was not a party to the contract at all.
Indian law reaches the same result on ordinary principles, and the duty of care owed by a professional to his client has never been thought to be displaced by the retainer.

3. Exclusion and Limitation Clauses

A clause excluding or limiting liability operates on the tortious duty as well as the contractual one, if it is clearly worded to do so. That follows from Henderson: the parties may contract out of the general law.
But such a clause is construed strictly against the party relying on it, on the contra proferentem principle.
Clear words are required to exclude liability for negligence. A general exemption from "all liability" may be read as directed at strict contractual liability and not at negligence, particularly where the party relying on it could be liable on some other footing.
A disclaimer may negative the assumption of responsibility altogether, in which case no duty arises at all rather than a duty being excluded. That is what happened in Hedley Byrne itself: TORT 075.
A clause purporting to exclude liability may be void as opposed to public policy under section 23 of the Indian Contract Act, 1872, and a standard form clause in a contract between parties of unequal bargaining power may be struck down as unconscionable.
And an exclusion clause binds only the parties. It affords no protection against a claim by a third party who never agreed to it, which is one reason a tort claim may succeed where a contractual one cannot.

4. When Each Claim Is Preferable

A tort claim is preferable where	A contract claim is preferable where
The limitation period is longer, or runs from a later date	The obligation is strict, so no fault need be proved, as most contractual obligations are
The plaintiff is not a party to the contract, so privity bars a contractual claim	There is an agreed sum or a liquidated damages clause, avoiding the difficulty of proving loss
A wider measure of damages is available, tort remoteness being more generous	Expectation damages exceed the restorative measure, because the bargain was a good one
Non pecuniary loss is claimed, which contract compensates sparingly	Contributory negligence would not reduce a claim for breach of a strict contractual obligation
Exemplary damages are sought, which are unavailable in contract	The breach is clear on the documents and requires no enquiry into reasonable care

5. Negligent Performance of a Contract

Careless performance of a contractual obligation may be both a breach and a tort, and the two claims arise on identical facts.
A professional retained under a contract owes a concurrent duty in tort: the standard is the same, the ordinary competent member of the calling, and the difference lies in limitation and in who may sue.
A third party injured by the negligent performance sues in tort alone, having no contract. That is the situation in Donoghue v. Stevenson, and it is the reason the privity fallacy had to be destroyed: TORT 079.
Pure economic loss caused by negligent performance to a third party raises the Hedley Byrne question: was responsibility assumed toward him, and did he reasonably rely.

6. Voluntary Assumption of Risk Through a Contract

A contractual term may operate as a voluntary assumption of risk, and so as the defence of volenti non fit injuria.
An agreement to accept a risk is construed strictly, and mere knowledge of a risk is never consent to it: TORT 018.
Volenti is generally unavailable against an employee, because the pressure of employment makes consent unreal, and a contrary rule would allow the employer's non delegable duty to be contracted away.
And a term purporting to exclude liability for personal injury is regarded with particular suspicion, and is liable to be struck down as opposed to public policy.

⚠ Why the plaintiff should plead both, and the risk of pleading neither properly

Where the facts support a claim in contract and a claim in tort, the sensible course is to plead both in the alternative, because the two may diverge at several points and the divergence is not always apparent at the outset. The limitation position may differ, and a contractual claim time barred from the breach may survive in tort from the later date of damage. The measure may differ, and the plaintiff cannot always tell in advance which is larger. The defences differ, and contributory negligence may reduce the tort claim while leaving a strict contractual obligation untouched. And the exclusion clause may on construction cover one and not the other. The corresponding risk is a plaint that pleads both loosely and particularises neither, in which the contractual term relied on is not set out, the duty of care is asserted rather than established, and the measure of damages is claimed without identifying which basis it rests on. A defendant meeting such a pleading will attack it on both fronts, and the plaintiff will find that the alternative he neglected was the one he needed.

7. The Position Stated Shortly

1. A contractual duty is fixed by the parties and owed to the other party; a tortious duty is imposed by law and owed to persons generally.

2. Contract damages are expectation damages, giving the benefit of the bargain; tort damages restore the plaintiff to the position before the wrong.

3. Contract remoteness follows Hadley v. Baxendale and is judged at the time of contracting; tort remoteness follows The Wagon Mound and is judged at the time of the breach.

4. In contract limitation runs from the breach; in tort from when the damage occurs.

5. Henderson v. Merrett Syndicates holds that the law of tort is the general law out of which the parties may contract, and that duties in tort and contract may exist concurrently.

6. The plaintiff may choose the more advantageous remedy, and the court enquires whether the tortious liability is excluded because the contract is inconsistent with it.

7. An exclusion clause operates on the tortious duty if clearly worded, is construed strictly against the party relying on it, and requires clear words to exclude negligence.

8. An exclusion clause binds only the parties, and affords no protection against a third party who never agreed to it.

9. A contractual term may operate as volenti non fit injuria, but is construed strictly and is generally unavailable against an employee.

10. Where the facts support both, the claims should be pleaded in the alternative, since limitation, measure, defences and exclusion clauses may each produce a different answer.