Rock, Restitution and Disgorgement

Contents Page ..............................5 Contents Page Foreword ........................................................................................................................................5 Articles and Comment ...........................7 .........................16 Health Law .........................27 .........................35 ) of the .........................44 Mental Health Inquiries – Views from the Chair Herschel Prins.......................................................................................................................7 The Draft Mental Incapacity Bill Camilla Parker ...................................................................................................................16 Is this a revolution? The impact of the Human Rights Act on Mental Health Law Paul Bowen ........................................................................................................................27 The Consequences of Acting Unlawfully Kris Gledhill ......................................................................................................................35 Placed Amongst Strangers – the Tenth Biennial Report (2001 – 2003) of the Mental Health Act Commission Mat Kinton........................................................................................................................44 Casenotes .........................52 .........................66 .........................75 Capacity, Treatment and Human Rights Peter Bartlett.......................................................................................................................52 Judicial recognition of the status of the Code of Practice Anna Harding....................................................................................................................66 Re-detention after a tribunal discharge – the last word? David Hewitt and Kristina Stern ..........................................................................................75 Book Reviews Sandland .........................86 Peay .........................91 Mental Health Law Policy and Practice, by Peter Bartlett and Ralph Sandland (2nd edition) William Bingley ..................................................................................................................86 Decisions and Dilemmas – working with mental health law, by Jill Peay John Horne.........................................................................................................................91 3 Journal of Obligation and Remedies 4 February 2004 Foreword Foreword This edition of the Journal highlights some of the case law developments seen in the later part of 2003. The opinions of the House of Lords in Shogun Finance Ltd v Hudson [2003] UKHL 62 are analysed by Dr. Adrian Chandler and Dr. James Devenney in “Mistake as to Identity and the Threads of Objectivity”. The case of Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52 is considered, amongst others, in a critical analysis by Alasdair Maclean of the role of distributive justice in controlling liability in wrongful pregnancy cases. Finally, Ralph Cunnington explores the award of gain-based damages in the light of recent case law, particularly Experience Hendrix LLC v PPX Enterprises Inc., Edward Chalpin [2003] EWCA Civ 323. The Journal of Obligation and Remedies seeks to act as a focus for the discussion of current issues, controversies and developments in the areas of contract, tort and restitution. Its scope is wide, including not only explanatory or critical articles but also encompassing articles of a historical, comparative or economic nature. As editor I am pleased to receive articles within the ambit of the Journal and am ready to discuss ideas for future articles or comments. Submissions, particularly from new authors are encouraged. Details as to the requirements for submission of articles are contained on the inside of the front cover. Steve Wilson 5 Journal of Obligation and Remedies 6 February 2004 Mistake as to Identity and the Threads of Objectivity Mistake as to Identity and the Threads of Objectivity Dr. Adrian Chandler and Dr. James Devenney, Commercial Law Research Unit, University of the West of England, Bristol Mistake as to identity during the contracting process has proved to be a fruitful source of academic debate for more than a century1. The typical scenario involves A selling goods to B, where B, by cunning artifice, persuades A that he is actually dealing with C. B then sells the goods onwards to X, an innocent third party who wishes to assert his title to the goods as against A. Armed with a series of seemingly contradictory judicial dicta, and presented with a range of factual scenarios, academic tutors have been expected to draw distinctions of extreme subtlety in order to determine whether the ensuing contract between A and B was void for mistake, or simply voidable for fraud. The ability to distinguish the substance of a person’s identity from any severable attributes, and to comprehend the importance of the factual context in which negotiations took place, seemed pivotal to the proffering of justifiable, albeit speculative conclusions. However, such intellectual entertainment does little to serve the twin cornerstones of certainty and predictability upon which the international reputation of the English Law of Contract is based. Thus, in recently commenting on the state of the law in this area, Sedley LJ seemed justified in concluding: “The illogical and sometimes barely perceptible distinctions made in earlier decisions, some of them representing an unarticulated judicial policy on the incidence of loss as between innocent parties, continue to represent the law.”2 In such circumstances the recent House of Lords’ decision in Shogun Finance Ltd v Hudson3 was eagerly anticipated. The facts were that B, a rogue, agreed to purchase a car from CV Ltd for * 1 We would like to extend our thanks to Professor Jill Poole for her helpful comments on an earlier draft. Naturally we retain exclusive responsibility for any errors and omissions in the final text. See Stoljar, Mistake and Misrepresentation, (Sweet and Maxwell, London, 1968), Ch.4; Goodhart, Mistake as to Identity in Contract, (1941) 57 LQR 228; Williams, Mistake as to Party in the Law of Contract, (1945) 23 Can Bar Rev 271 and 380; 2 3 Wilson, Identity in Contract and the Pothier Fallacy, (1954) 17 MLR 515; Unger, Identity in Contract and Mr Wilson’s Fallacy, (1955) 18 MLR 259; and, Hall, Some Reflections upon Contractual Mistake at Common Law, (1995) 24 Anglo-Am LR 493. Shogun Finance Ltd v Hudson [2001] EWCA Civ 1000; [2002] QB 834 at [11]. [2003] UKHL 62, [2003] 3 WLR 1371. 7 Journal of Obligation and Remedies February 2004 approximately £22,250, subject to obtaining hire-purchase finance. B produced a driving licence in the name of Mr Patel. This licence was genuine but had been obtained unlawfully. CV Ltd faxed a copy of the driving licence, plus all other personal details supplied by B, to Shogun Finance Ltd, the respondents. Shogun instituted a thorough credit reference search through various agencies, including a check on any county court judgments or bankruptcy orders registered against Mr Patel. This search produced a “credit score” that automatically resulted in acceptance of the finance proposal. Having decided that the signatures on the faxed copies of the driving licence and the a greement form matched, Shogun informed CV Ltd that the proposal was accepted. B subsequently sold the car for approximately £17,000 to Hudson, the appellant, who intended to use it in his recently established courtesy car business. At first instance the assistant recorder ruled that the ‘contract’ between Shogun and B was void for mistake of identity and therefore no title could pass to Hudson under s 27 of the Hire- Purchase Act, 1964.4 The Court of Appeal, by a majority, rejected Hudson’s appeal, employing a literal definition of the word “debtor” in s 27. However, in particular, the judgments of Dyson and Brooke L JJ are more noteworthy for their obiter comments on the confused state of the case-law surrounding mistaken identity.5 The House of Lords, by a simple majority (Lords Nicholls and Millett dissenting), rejected the appeal. The nature of the appeal6 and the fact that their Lordships delivered separate speeches makes the task of distilling a common set of principles more conjectural. However, basic unanimity was achieved on the following propositions: (1) The issue in this appeal was essentially one of offer and acceptance,7 (2) An objective appraisal of the facts will determine to whom an offer was made and by whom it was accepted,8 (3) In face to face dealings it is, at the very least, a very strong presumption that the parties intended to deal with each other; ie their physical presence rather than any assumed identity,9 (4) The majority decision in Ingram v Little should be overruled.10 There also appeared to be clear dissatisfaction with previous case-law that had emphasised the importance of distinguishing a person’s identity from his attributes.11 However, differences of opinion emerged when considering contracts concluded by written correspondence, irrespective of whether this had led to a formal written contract. Was the offer and acceptance concluded between the named parties, or the persons who actually wrote the letters and/or signed the final written contract? In particular, could the presumption with regard to face to face dealings be extended to all forms of communication, or should it be reversed where negotiations had been conducted, or the final signature appended, inter absentes? Before considering these issues, it would appear apposite to examine briefly the provisions of Part III of the Hire Purchase Act 1964, which were, of course, at the centre of this case. We can then offer some tentative guidance on how the House of Lords’ decision in Shogun has affected our general understanding of this troubled area of “mistaken identity”. 4 As substituted by the Consumer Credit Act 1974, s 192(3)(a), Sch 4, para 22. 5 7 Shogun Finance Ltd v Hudson [2001] EWCA Civ 1000; [2002] QB 834 at [11] and [51] respectively. See Lord Hobhouse [2003] UKHL 62; [2003] 3 WLR 1371 at [44], who was keen to stress that the appeal solely concerned the “application of this statutory provision to the facts of the case (no more, no less).” See, for example, Lord Walker, ibid at [183]. 8 Ibid at [6] per Lord Nicholls of Birkenhead, [46] per 6 8 Lord Hobhouse, [65] per Lord Millett, [125] per Lord Phillips, and [183] per Lord Walker. 9 Ibid at [37] per Lord Nicholls, [67] per Lord Millett, [170] per Lord Phillips and [185] per Lord Walker. 10 [1961] 1 QB 31. See [2003] UKHL 62; [2003] 3 WLR 1371 at [110] per Lord Millett, [185] per Lord Walker, implicitly supported by Lord Nicholls at [22] and [36], and Lord Phillips at [147] and [170]. 11 See, for example, [2003] UKHL 62; [2003] 3 WLR 1371 at [5] per Lord Nicholls and at [59] per Lord Millett. Mistake as to Identity and the Threads of Objectivity 1. Part III of the Hire Purchase Act 1964 In the factual situation outlined at the start of this paper, the effect of mistaken identity on the ‘contract’ between A and B will have potentially serious implications for X: the ability of X to establish title will depend largely on whether the ‘contract’ between A and B was void or merely voidable. If the ‘contract’ between A and B is void, B will not acquire title and prima facie will not be able to transfer title to X: nemo dat quod non habet.12 In such a situation A will be able to reclaim the goods. If, however, the contract between A and B is merely voidable, B will be able to tra n s fer title13 to X provided A has not already avoided the contract;14 consequently, A will not be able to reclaim the goods. If we move the factual postulate closer to the facts of Shogun, involving a hire purchase contract between A and B, it is clear that even if the contract is valid, B does not, initially at least, obtain title to the goods.15 At this stage, adopting the nemo dat rule, B prima facie does not have the power to transfer title to the goods to X.16 If, however, the goods involved are motor vehicles17 B may be able to pass good title to X under Part III, Hire Purchase Act 1964,18 provided X is a ‘private purchaser’19 who acts in good faith and without notice of the hire purchase agreement.20 Does it matter whether the hire-purchase ‘contract’ between A and B is either void or voidable? Can B still pass title to X? Although the Act is slightly ambiguous on this matter,21 the generally accepted view has been that B cannot pass good title to X if the hire purchase ‘contract’ is either void or was voidable and has been avoided prior to the disposition to X.22 Certainly this seems to be the better view of Part III, Hire Purchase Act 1964 when considered as a whole,23 an approach that was adopted by the majority in Shogun where the ‘contract’ between A and B was void. Separately, Lords Nicholls and Millett proceeded on the basis that B could pass title under Part III, Hire Purchase Act 1964 where the hire purchase contract between A and B was merely voidable, albeit where it had not been avoided.24 Therefore in Shogun it was vital to determine whether or not the putative contract was void. 12 Theoretically, the nemo dat exception contained in the Factors Act 1889, s 9 (substantially reproduced in Sale of Goods Act 1979, s 25), seems applicable, but to rely upon this exception B must have obtained possession of the goods with the consent of the A, a requirement unlikely to be satisfied where the ‘contract’ is void for mistake of identity: see Du Jardin v Beadman Brothers Ltd [1952] 2 QB 712, 718. 13 Assuming that, as between A and B, it was intended that property in the goods was to pass immediately to B: cf Sale of Goods Act 1979, s 17. 14 See s 23 of the Sale of Goods Act 1979, and its application in Car & Universal Finance Ltd v Caldwell [1965] 1 QB 525. 15 See, for example, Helby v Matthews [1895] AC 471. 16 Moreover, B is not someone who has “bought or agreed to buy” goods for the purposes of the Factors Act 1889, s 9: Helby v Matthews [1895] AC 471. 17This term is defined in s 29(1) of the Hire Purchase Act 1964. 18 See, however, s 29(5). 19 Defined in s 29(2) of the Hire Purchase Act 1964; see also Stevenson v Beverley Bentinck [1976] 1 WLR 483. 20 See ss 27(1) and 27(2) of the Hire Purchase Act 1964. For the position where X is not a private purchaser, see s 27(3). 21 Cf the use of the word “a” in s 27(1) and the definition of debtor in s 29(4). If one wished to argue that B could pass good title to X where the hirepurchase ‘contract’ was void, one might refer to the legislative evolution of these provisions; see Davies, Wrongful Dispositions of Motor Vehicles – A Legal Quagmire [1995] JBL 36, 47-50. 22 See Guest, The Law of Hire Purchase, (Sweet & Maxwell, London 1966) at 769-770; Goode, Hire Purchase Law and Practice, 2nd ed, (Butterworths, London, 1970), at 619-620; Goode, Commercial Law, 2nd ed, (Penguin, London, 1995) at 477; and, Guest (ed), Benjamin’s Sale of Goods, 6th ed, (Sweet & Maxwell, London, 2002), at 7-088. Compare also Brown, Commercial Law, (Butterworths, London, 2001) at 422. 23 See, in particular, s 29(1). 24 Cf the judgment of the Court of Appeal: [2001] EWCA Civ 1000; [2002] QB 834, especially at [6] and [35]. In Shogun it was common ground that if the contract was merely voidable, it had not been avoided prior to the sale to X (see, for example, [36]). 9 Journal of Obligation and Remedies February 2004 2. The Role of Objectivity A common thread permeating their Lordships’ speeches in Shogun was the importance of objective factual analysis. Applying the standard rules of offer and acceptance was a sine qua non for determining whether the original hire purchase ‘contract’ could permissibly transfer title to the appellant. Lord Millett, in effect, accurately summed up the approach adopted by all his colleagues when saying: “Whatever the medium of communication, a contract comes into existence if, on an objective appraisal of the facts there is sufficient correlation between offer and acceptance to make it possible to say that the impostor’s offer has been accepted by the person to whom it was addressed”.25 The difficulty, of course, is to define precisely what “objectivity” means in contract formation. Clearly the term denotes an analytical process devoid of either party’s concealed, subjective motives and expectations.26 But from whose perspective?27 Assuming that A makes an offer, how does one decide whether the offer has been made to B, or to C (the person who B claims to be)? Conversely, if B makes an offer to A, what relevant criteria should a court employ in determining whether A has accepted an offer from B that seemingly emanated from C? One option would be to view all the circumstances through the eyes of one of the contracting parties, A or B, and ask whether there had been an apparent exchange of offer and acceptance.28 In the Court of Appeal, Dyson LJ considered the matter from B’s perspective: “viewed objectively, should the rogue have interpreted the offer by the finance company as an offer to enter into the hire-purchase agreement with him or with Mr Patel?”29 Objectivity: a party-based perspective? One difficulty of interpreting the facts from one party’s viewpoint is that B knows A believes he is dealing with C (which is why he practices his deception) whilst A assumes that he is making an offer to a named individual called C.30 Although a reasonable person might not be imbued with that knowledge, it is inevitable that a judgment of A’s apparent intentions, or B’s apparent knowledge, will be coloured either by B’s underlying motivation which seeks to “modify” A’s intentions from the outset, or by A’s innocent assumption that B and C are one and the same person.31 In Cundy v Lindsay,32 for example, a rogue called Blenkarn had ordered goods from the plaintiff respondents, 25 [2003] UKHL 62; [2003] 3 WLR 1371 at [81]. 26 See, for example, Trentham Ltd v Archital Luxfer [1993] 1 Lloyd’s Rep 25, 27, where Steyn LJ explicitly disregarded the “subjective expectations and unexpressed mental reservations of the parties.” 27 Relevant literature on this issue includes Spencer, Signature, Consent and the meaning of the Rule in L’Estrange v Graucob [1973] CLJ 104; Howarth, The Meaning of Objectivity in Contract, (1984) 100 LQR 265; Vorster, Comment on the Meaning of Objectivity in Contract, (1987) 103 LQR 265; and, de Moor, Intention in the Law of Contract: Elusive or Illusory (1990) 106 LQR 632. 28 Traditionally one might consider how the promisee 10 interpreted the promisor’s intentions from the terms of the offer and the surrounding circumstances: see Goodhart, Mistake as to Identity in Contract, (1941) 57 LQR 228 especially at 231. 29 [2001] EWCA Civ 1000; [2002] QB 834 at [40]. 30 See Lewis v Averay [1972] 1 QB 198, 208, where Megaw LJ questioned the efficacy of any test that depended “upon the view which some rogue should have formed, presumably knowing that he is a rogue, as to the state of mind of the opposite party to the negotiation, who does not know that he is dealing with a rogue”. 31 It is possible to draw an analogy here with the business efficacy test adopted in The Moorcock (1889) 14 PD 64 in which terms are not implied on the basis of reasonableness, but by reasonable people possessing the Mistake as to Identity and the Threads of Objectivity pretending to be Blenkiron, a reputable hotelier. The goods were dispatched to Blenkarn’s actual address, the same road from which Blenkiron operated, and were immediately sold on to the defendant. In the House of Lords, Lord Cairns LC considered the intention of the plaintiff with regard to Blenkarn and concluded forcefully: “Of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never, for an instant of time, rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever”.33 It is clearly arguable that this approach displayed an over-reliance upon the subjective intentions of the plaintiff. Indeed, in Shogun, Lord Millett criticised the apparently subjective nature of the enquiry,34 preferring to ignore the plaintiff’s actual state of mind, induced by the fraud, and concentrate exclusively on whether a “sufficient correlation” existed between the offer and the acceptance.35 It is difficult to find fault with such sentiments. Although courts strive to give effect to the parties’ intentions, such intentions must be apparent, not merely held, otherwise we are in danger of substituting true consensus (ie of both parties) with an imposed consensus by just one party. This danger remains conspicuous when applying an objective test through the eyes of one or other party. Howarth, in considering “promisor objectivity” and “promisee objectivity” within the wider context of unilateral mistake, rightly cautioned that either method might produce a result more attuned to the parties’ intentions but that one of the party’s, more subjective, interpretation was bound to dominate in practice. Indeed, in the context of mistaken identity, other analytical flaws begin to emerge. First, if one adopts A’s viewpoint, it is difficult to visualise circumstances where A would intend to deal with B. For example, in Ingram v Little, the Court of Appeal was faced with a very different set of facts in which the Plaintiff had sold her car, after faceto-face negotiations, to a rogue masquerading as a Mr Hutchinson of Caterham. Devlin LJ, in a strongly worded dissenting judgment, criticised certain subjective aspects of the supposed “objective test”, clearly adopted in Cundy, along the following lines: “If Miss Ingram had been asked whether she intended to contract with the man in the room or with Mr P G M Hutchinson, the question could have had no meaning for her, since she believed them both to the one and the same. The reasonable man of the law – if he stood in Miss Ingram’s shoes – could not give any better answer”.37 As Devlin LJ would have realised, such speculation simply generates a self-fulfilling prophecy as A would never consider the possibility that he was dealing with the wrong person, a point fully endorsed by Lord Walker in Shogun.38 Secondly, if one adopts B’s viewpoint, taking account of his intended deception, it is generally inconceivable that he would assume A wanted to deal with him (B), a fact that prompted B to act fraudulently in the first place.39 This was certainly the view of Hannen J in Smith v Hughes where known characteristics of the contracting parties. 32 (1878) 3 App Cas 459. 33 Ibid at 465. 34 [2003] UKHL 62; [2003] 3 WLR 1371 at [91]. 35 Ibid at [76], repeated at [81], [92] and [93]. Note the similarity with the Principles of European Contract Law (Art 2:101) which requires a test of “sufficient agreement” between the parties. 36 Op cit Howarth at 273. 37 [1961] 1 QB 31, 65 (emphasis added). Use of promisee objectivity clearly lay at the heart of the majority decision in Ingram; see Sellers LJ at 53-54 and Pearce LJ at 55. 38 See [2003] UKHL 62; [2003] 3 WLR 1371 at [184]. 39 Note Boulton v Jones (1857) 2 H & N 564 (to be discussed later) where it remains a moot point whether B truly appreciated the mistake that A was making, 11 Journal of Obligation and Remedies February 2004 B’s knowledge of A’s mistake led to the conclusion that “he [B] is not entitled to insist that the promise shall be fulfilled in a sense to which the mind of the promisor did not assent”. 40 Admittedly, courts require B to know41 of A’s mistake, but this cannot be the sole pre-condition of contractual invalidity.42 Finally, it is admitted that promisor/promise objectivity is not mutually exclusive and that different circumstances might encourage one or other method to be employed. Spencer, for example, argued that “promisee objectivity” is the norm but was subject to two exceptions: where the promisee knew of the promisor’s mistake and, more significantly, where the promisee acted in a way which contributed to the promisor’s mistake.43 The problem here is that B knows of A’s mistake and specifically acts in a way which preserves A’s mistaken impression. If this led to reliance upon promisor objectivity then, following Cundy and Ingram, where A’s subjective intentions manifestly dominated, A would invariably succeed in cases of mistaken identity. Shogun: Applying an objective test In Shogun, a precise definition of “objectivity” did not emerge in any of the speeches, but it seems reasonably clear that the majority of their Lordships avoided the adoption of a purely party-based perspective.44 Rather, the consensus of opinion suggested a more detached form of objectivity, based on how a reasonable person would view the circumstances,45 a pragmatic solution which avoids the problems of transposing the terminology of promisor/promise into a factual setting where the rogue may be either the offeror or the offeree.46 However, this represents only part of the solution. Having identified the standpoint from which objectivity is assessed, it is then necessary to decide the object of the exercise: to whom or to what is the test to be applied? Unfortunately, at this point, any semblance of unanimity disappeared. Lord Nicholls shunned any attempt to discern, in more than a limited sense,47 the intention of the innocent seller: “what matters is whether [A] agreed to sell his goods to the person with whom he is dealing, not why he did so or under what name.” 48Lord Millett, in agreeing with Lord Nicholls, sought to find an objectively verifiable correlation between the offer and the acceptance. Evidence of A’s intention, however clear, was of little consequence when objectively determining the presence of offer and acceptance.50 Lord Hobhouse steadfastly refused to conduct any “factual enquiry into extraneous facts not known to both of the parties”.51 As the parties had entered a written contract, the parol 40 41 42 43 especially with regard to knowledge of A’s set-off against the previous owner of the shop, although the report in (1857) 6 WR 107 might suggest otherwise. (1871) LR 6 QB 597, 610. This analysis was fully supported by Professor Goodhart, op cit at 231. Cf Hartog v Colin & Shields [1939] 3 All ER 566. See The Unique Mariner (No 2) [1979] 1 Lloyd’s Rep 37 for a perfect illustration of how B’s knowledge, viewed objectively, emphasised the unilateral nature of A’s mistake, rather than the existence of the mistake itself. Op cit, Spencer, especially at 106-7. 44 Cf Lord Nicholls [2003] UKHL 62; [2003] 3 WLR 1371 at [10] who seems to intimate that objectivity should be assessed through the eyes of A. 12 45 See, for example, Lord Walker, ibid at [183]. 46 Compare Boulton v Jones (1857) 27 LJ Ex 117 and Cundy v Lindsay (1878) 3 App Cas 459. 47 [2003] UKHL 62; [2003] 3 WLR 1371 at [10] where Lord Nicholls states that “for the purpose of deciding whether a person had the necessary intention to enter into a contract with the crook, a person’s intention is considered more narrowly. It is assessed by reference to what he believed the position to be.” 48 Ibid at [28]. 49 Ibid at [97]. 50 Ibid at [87] where his Lordship supports the approach adopted by Horridge J in Phillips v Brooks [1919] 2 KB 243 of separating the “identity” of the buyer (in terms of offer and acceptance) from evidence of the Mistake as to Identity and the Threads of Objectivity intentions of the parties had no bearing on the identification of the parties as this had become a question of documentary construction. Lord Phillips’s approach was very different: “The object of the exercise is to determine what each party intended, or must be deemed to have intended”, deducing such intentions “from their words and conduct”.52 Finally, Lord Walker seemingly favoured the approach taken by Lord Phillips, but attempted to reconcile all of the above views: “The objective nature of the enquiry tends to narrow [the difference] between the person for whom the offer or acceptance is intended and the person to whom it is directed. I venture to suggest that the right question to ask … is to whom the offer is made (or to whom acceptance of an offer is made)”.53 3. Objectivity in Dealing or Intention? The differences of approach advocated by their Lordships were critical to their final decisions. By adopting a restrictive definition of intention, Lords Millett and Nicholls were able to conclude that a hire-purchase contract had been formed between Shogun and the rogue. Offer and acceptance correlated exactly, with evidence of the buyer’s fraud going to subsequent remedy rather than initial contract validity. These views find resonance in Lewis v Averay,54 where Lord Denning MR stated: “… we do not look into his intentions, or into his mind to know what he was thinking or into the mind of the rogue. We look to outward appearances.” Did this mean that A’s intention to contract with a particular individual could only be defined by reference to “outwa rd appearances”, or that, in assessing such “outward appearances”, the supposed intention of A was of secondary importance in determining the identity of the other contracting party? Th e re seems little doubt that Lords Millett and Nicholls embraced the latter interp retation.55 Thus, whilst espousing the principles of objectivity, any evidence that went to A’s state of mind and might assist in the task of identifying his intention, would remain hidden from the reasonabl e person’s evaluation of the offer and acceptance issue (including the reason why A entered the contract).56 On the facts, the actions of Shogun in carrying out credit reference checks and the production of the stolen driving licence by the rogue we re presumably irrelevant - such evidence wa s probative of fraud, and its effect, but could not affect whether Shogun was selling the car to the person in the showroom. Lord Millett’s conclusion was that Shogun believed the impostor was the real Mr Patel and that “in that belief it entered into a hiring agreement and authorised the dealer to deliver possession of the car to the customer who had so identified himself.”57 The ensuing contract might be subsequently rescinded for fraud, but the fraud-induced intention to sell could not negative the formation of the contract itself.58 Indeed, this approach called into question the 51 seller’s intention (relevant to the issue of fraud). Ibid at [55]. 52 Ibid at [125] and [170]. 53 Ibid at [184]. See also Lord Millett at [71] who highlighted the difference between an offer being “intended for” a specific person as opposed to being “directed” to that person. For a fuller analysis of this linguistic minefield, see Williams, Mistake as to Party in the Law of Contract, (1945) 23 Can Bar Rev 271 and 380, especially at 390-2. 54 [1972] 1 QB 198, 207. 55 Cf [2003] UKHL 62; [2003] 3 WLR 1371 at [152] per Lord Phillips. Note the marked contrast with the approach taken by the Court of Appeal in The Great Peace [2002] EWCA Civ 1407, [2003] 3 WLR 1617, where the parties’ intentions, in the context of common mistake, were considered to be of paramount importance: see Chandler, Devenney and Poole, Common Mistake: Theoretical Justification and Remedial Inflexibility [2004] JBL 34. 56 [2003] UKHL 62; [2003] 3 WLR 1371 at [29] per Lord Nicholls. 57 Ibid at [107]. 13 Journal of Obligation and Remedies February 2004 correctness of the House of Lords’ decision in Cundy v Lindsay as “objectively speaking there was consensus ad idem, though this was vitiated by the fraud which produced it”.59 The views espoused by Lords Nicholls and Millet are crystal clear. Tortuous analysis of the metaphysical characteristics of identity are seemingly consigned to the preserve of academia. An o b j e c t ive test is being employed primarily to identify whether the physical exchange of offer and a c c eptance has occurred between the part i e s, rather than to whether the parties (objectively) intended to make such an exchange. This truncated form of o b j e c t ivity is directed solely to one aspect of contract formation (namely, what the parties did), circumventing any evidential presumptions that might facilitate a clearer understanding of what the parties intended. A is “treated as intending to contract with the person with whom he is dealing”,60 whether that be the person standing in front of him or the person to whom he is writing. Naturally, this raises the question of the relationship between the principles of offer and acceptance on the one hand and the principles of unilateral mistake on the other. Lord Millett, drawing from the dissenting judgment of Devlin LJ in I n gram v Little,61 advocated a two-stage approach: (i) is there sufficient correlation b e t ween offer and acceptance and if so (ii) is the ‘agreement’ affected by mistake? In relation to the second question, his Lordship was clearly of the opinion that a unilateral mistake as to identity did not render a ‘contract’ void but rather, as Lord Denning MR had suggested, only voidable.62 Returning to the facts of Cundy v Lindsay, where A had directed his acceptance to B’s address, Lord Millett stated that: “The goods were ordered by Blenkarn posing as Blenkiron & Co. and supplied and invoiced to him in that name. Outwardly the acceptance did correspond with the offer”.63 Thus, the name proffered by B appears irrelevant, representing a mere “label” by which a person can be identified, as transient as an address or occupation.64 Rather, what matters is the physical transmission of the acceptance to the person who ordered the goods - a seductively uncomplicated approach, but does it provide the required level of predictability? Lord Nicholls certainly showed no inclination to add any further refinements to the “dealing” test: once the owner of goods had agreed to part with ownership of those goods on the basis of a fraudulent misrepresentation, a contract had been formed, albeit voidable in nature. However, this suggests that if B fraudulently intercepts and thereupon accepts an offer from A to C then a contract nevertheless ensues. The physical transmission of offer and acceptance has occurred between A and B, with B’s fraud simply leading A to believe that he is still dealing with C. Such a conclusion would clearly undermine the role of objectivity in determining whether an outwardly intended exchange of offer and acceptance had occurred.65 Lord Nicholls’ approach also suggests that the decision in Boulton v Jones,66 is now 58 Ibid at [6] per Lord Nicholls. 59 Ibid at [97]. See also [108]-[109] where Lord Millett specifically calls for the House to overrule its decision in Cundy v Lindsay, a view which is also adopted by Lord Nicholls at [34]-[35]. 60 Ibid at [81] per Lord Millett (emphasis added). The same test was used by Lord Nicholls when reconsidering the facts of Cundy v Lindsay, at [28] and [31]. 61 [1961] 1 QB 31. 62 See Lewis v Averay [1972] 1 QB 198, 206-207. Quaere the circumstances, if any, in which a contract 14 could be voidable in Equity on the ground of mistaken identity; cf Beatson, Anson’s Law of Contract, 28th edn., (Oxford University Press, Oxford, 2002) at 345347, and Huyton SA v Distribuidora Internacional de Productos Agricolas SA [2003] EWHC 2088. 63 Ibid at [97]; see also [34]–[35] per Lord Nicholls. 64 Lord Phillips supported this view, ibid at [120]. 65 Lord Millett, ibid at [63], noted that a physical transmission of offer and acceptance would not create a contract where a fraudulent interception of the offer or acceptance had taken place. 66 (1857) 2 H & N 564. Mistake as to Identity and the Threads of Objectivity to be doubted. The facts were that the defendant had ordered goods from Brocklehurst, prompted by an existing set-off for that amount. Unfortunately, Brocklehurst had sold his shop, that day, to the plaintiff. The Court of Exchequer ruled that the defendant had sent an offer to Brocklehurst which therefore could not be accepted by the plaintiff. Applying Lord Nicholls’ test would inevitably lead to the formation of a contract as the parties had physically corresponded with one another. Certainly there was no suggestion that the plaintiff had fraudulently intercepted the defendant’s offer to Brocklehurst.67 Perhaps the above analysis led to Lord Millett’s positive support for the decision in Boulton v Jones. His Lordship commented that as the goods had been “ordered from Brocklehurst but supplied and invoiced by Boulton; the acceptance did not correspond with the offer”.68 Thus, according to Lord Millett, in Cundy A was dealing with B, where the recipient was named as C but operated from B’s address, whilst in Boulton A was dealing with B, where the order was sent to B at C’s address.69 Can this apparent conflict be reconciled? One possible argument is that the two cases demonstrate the importance of first identifying whether the rogue is the offeror or offeree, a point rarely mentioned in Shogun.70 In Cundy, the court’s attention was focussed on the offeror’s identity – the offeree simply accepted the offer from the rogue, sending it back to the address given. Conversely, in Boulton, it was the offeree’s identity that was at issue – the offeree purported to accept an offer directed to a differently named person.71 Lord Millett sought to circumvent this difficulty by suggesting that as the plaintiff, in Boulton, could not accept an offer addressed to another person, his remittance of the order represented a counter-offer which the defendant accepted in the mistaken belief that it was made by Brocklehurst.72 With respect, this interpretation is equally difficult to sustain as it is clear that the defendant had no knowledge of any change of the shop’s ownership until after he had consumed the goods. Surely no contract can be formed where A makes an offer to B, which is countered by C and then mistakenly accepted by A? In conclusion, we are left with the distinct impression that the “dealing” test advocated by Lords Nicholls and Millett retains the capacity for producing unpredictable decisions, with Lord Nicholls’ version offering a more workable solution provided clearer guidance is given on such issues as fraudulent interception, and the comparative relevance of B’s personal details where A has wrongly addressed his offer or acceptance either in terms of the named recipient or stated address. In contrast to the above, Lords Phillips and Walker adopted a more traditional analysis in which divining A’s apparent intention would determine with whom the offer and acceptance had taken place. In the words of Lord Phillips, where two people had reached an agreement, “the court asks the question whether each intended, or must be deemed to have intended, to contract with the other”.74 67 Cf Cheshire, Mistake as Affecting Contractual Consent, (1944) 60 LQR 174, 185, who argues that the facts demonstrated that the plaintiff had acted negligently in the circumstances. unaware that C now operated from B’s old address or that his reason for placing the order was the existence of a set-off against Brocklehurst. Support for this analysis can be found in Williams, op cit at 388-90. 68 [2003] UKHL 62; [2003] 3 WLR 1371 at [97]. Arguably, the real question should have been whether an offer sent to a shop, but addressed to a named individual, could reasonably be supposed to be addressed to that individual or to the owner of that shop at the time the offer was received. 69 Note that Lord Millet’s test would ignore any facts that went to A’s intention; eg in Boulton, that A was 70 See, however, Lord Hobhouse’s analysis at [47] where the nature of credit transactions and the role of the rogue, as offeror, is an important consideration. 71 [2003] UKHL 62; [2003] 3 WLR 1371 at [70]. 72 Ibid at [96]. 73 Quaere if this is possible. 74 [2003] UKHL 62; [2003] 3 WLR 1371 at [125]. 15 Journal of Obligation and Remedies February 2004 It is at this point that some members of the academic fraternity might lick their lips with delight, confident in the belief that the pursuit of “intention” necessarily leads the court back to an investigation of why A considered B’s identity to be so fundamental,75 why the difference between B and C was so crucial to the ensuing contract,76 and how one might characterise the relevant totality of B’s identity.77 However, their Lordships managed to avoid any incursion into such sterile territory. Lord Phillips simply concentrated on “deducing the intention of the parties from their words and conduct,”78 an approach fully supported by Lord Walker who concluded that Shogun evidenced a clear intention to accept the offer seemingly made by the real Mr Patel.79 The relevant intention was not based on the importance of B’s identity but rather on the manifest conduct of A. In short, instead of focusing on why A intended to deal with B, the enquiry is redirected towards how A demonstrated this intention, rendering superfluous any separate body of rules for unilateral mistake of identity. Nevertheless, the fact that one party had mistaken the identity of his cocontractor might remain an important factor in assessing intention within the more appropriate context of contract.80 In summary, Lords Phillips and Walker clearly relied on the same form of objectivity at the contract formation stage as employed by courts to deduce the terms (and meaning) of an ensuing contract, or even when applying the remoteness test to the assessment of damages for breach of contract: in each situation, the outward intentions of the parties remain a primary constituent of objectivity. However, the germ of unpredictability, particularly in face to face dealings, remains. Lord Phillips admits as much when recognising that “the innocent party will have in mind, when considering with whom he is contracting, both the person with whom he is in contact and the third party whom he imagines the person to be”.81 Lords Phillips and Walker sought to resolve this potential conflict between physical evidence and apparent intention by clarifying and strengthening existing evidential presumptions with regard to inter praesentes and inter absentes dealings. It is this development which, it is respectfully argued, will truly result in the jettisoning of the more esoteric “mistake of identity” jurisprudence. 4. Face to face dealings The presumption that A intends to deal with B where negotiations have been conducted face-toface can be traced back to the speech of Lord Penzance in Cundy v Lindsay.82 Although no explanation for this presumption was immediately forthcoming it seems superficially justifiable for at least three reasons: (i) to all outward appearances the process of offer and acceptance has been 75 Eg Phillips v Brooks [1919] 2 KB 243 and Lewis v Averay [1972] 1 QB 198. In both cases A’s mistake about the creditworthiness of B was not considered sufficiently fundamental to invalidate the contract. 76 Traditionally it has always been thought essential that C, the party with whom A thought he was dealing, does actually exist; eg King’s Norton Metal Co v Edridge Merrett & Co Ltd (1897) 14 TLR 98. 78 See [2003] UKHL 62; [2003] 3 WLR 1371 at [170]. Lord Phillips also drew upon prior case law that had relied upon objective intention: see, for example, [127], [129], [133], [135], [138], [141]. 79 Ibid at [191]. 80 Ibid especially at [123]-[125]; see also The Hannah Blumenthal [1983] 1 All ER 34 and The Leonidas D [1985] 1 WLR 925. 77 Cf Treitel, The Law of Contract, 11th ed (Sweet & Maxwell, London, 2003), at 302, who rightly observes that it is quite possible that A believes that C’s whole identity is represented by some “identifying attribute” (eg membership of a particular college). 81 Ibid at [153]. 82 (1878) 3 App Cas 459, 471-472. Cf the earl i e r decision in Hardman v Booth (1863) 1 H & C 803 wh e re the issue of face to face dealings was seemingly irre l evant. 16 Mistake as to Identity and the Threads of Objectivity concluded physically between A and B,83 (ii) to some extent, A’s argument that B’s identity was of critical importance is less convincing if he (A) does not know what B looks like,84 and (iii) as there were only two primary means of communicating at the time of Cundy, by post or orally, there was an apparent logic in identifying one of those mediums as being more, or less, susceptible to a finding of mistake.85 Nowadays, of course, there is a multiplicity of communication channels available, even to the average consumer. Thus, in Shogun, Lord Millett questioned why other types of quasi-physical communications should not also be included in the presumption; for example, conversations held over the telephone or via the use of some form of televisual link: “If the offeree's words of acceptance are taken to be addressed to the physical person standing in his presence who made the offer, what is the position where they deal with each other by telephone? Is the disembodied voice to be equated with physical presence?”86 There is clearly considerable merit in this sugg e s t i o n .87 The existing presumption may be predicated on the physical immediacy of the parties but in the age of videophones and GPS satellite communications’ technology the distinction between inter presentes and inter absentes loses some of its meaning. Nor can it be argued that physical presence gives A an opportunity to ask for some form of immediate identification from B, perhaps impractical during telephonic or televisual communication. Leaving aside the ubiquitous fax machine (employed in Shogun), physical proof of identity is not the basis upon which a court would assess A’s intention to deal with B, nor can it affe c t whether A directed his offer to B. Regrettably this matter was left unre s o l ved as their Lordships proceeded on the basis that they were dealing with a written contract. Nevertheless, as the rogue wa s physically present in the car showroom, but dealt with the finance company via fax, one may c o n clude that any fundamental extension in the definition of “ face to face” was implicitly rejected.88 With reg a rd to the presumption itself, none of their Lordships suggested its abolition. Indeed, Lord Millett’s arguments seemingly rendered it conclusive for, by emphasising the “dealing” test, it necessarily followed that in face to face dealings there was only one person that A could be dealing with, the person in front of him. If further justification was needed, his Lordship persuasively argued that, “there is surely nothing to be said for resorting to a rebuttable presumption in order to resolve a question of fact [ie dealing] which is incapable of being determined by the evidence. If there is no test by which the question can be answered on the evidence, there is none by which the Court can determine whether the presumption has been rebutted.”89 On the other hand, Lords Phillips, Nicholls and Walker preferred to strengthen the presumption, struggling to find a suitable example where the presumption90 could, in practice, be rebutted, 83 Eg Phillips v Brooks [1919] 2 KB 243. 84 See, however, Hardman v Booth [1863] 1 H & C 803, where the presumption was successfully, albeit implicitly, rebutted. 85 Leading texts have consistently suggested that operative mistake was easier to establish where the parties had dealt with each other inter absentes; see, for example, Cheshire, Fifoot & Furmston, Law of Contract, 8th ed, (Butterworths, London, 1972) at 230 and the similar comments in the 14th ed (2001) at 280. 86 [2003] UKHL 62; [2003] 3 WLR 1371 at [69]; cf Entores v Miles Far East Corp [1955] 2 QB 327 at 332 per Denning LJ. 87 Lord Nicholls, ibid at [36], preferred to extend the face to face presumption to all types of communication, including contracts concluded by written correspondence; see also Lord Millett at [70]. 88 See, for example, Lord Phillips at [170] and Lord Hobhouse at [51]. Lord Walker, at [81], suggested the possible extension of the presumption to telephonic negotiations, but certainly no further. 89 Ibid at [67]. 90 Lord Hobhouse did not consider the presumption as the facts demonstrated a written contract concluded inter absentes; however, ibid at [51], he implicitly accepts the utility of the face to face presumption. 17 Journal of Obligation and Remedies February 2004 although Lord Walker did mention the celebrated story of the fraudulent Tichborne claimant who resorted to physical disguise in order to give the impression that he possessed a certain type of historical family resemblance.91 Lord Nicholls summed up the general mood by saying, “The factual postulate necessary to bring the presumption into operation is that a person (O) believes that the person with whom he is dealing is the person the latter has represented himself to be. Evidence that the other's identity was of importance to O, and evidence of the steps taken to check the other's identity, will lead nowhere if the transaction proceeds on the basis of the underlying factual postulate.”92 The face-to-face presumption now seems to verge on the irrebuttable and we can be reasonably confident that the esoteric distinctions of identity and attributes drawn in Ingram v Little,93 Hector v Lyons,94 and Lake v Simmons,95 will no longer be repeated. This then leaves us with the issue of contracts in writing. 5. Written correspondence and written contracts In Shogun Lord Millett forcefully argued that, in principle, there should be no distinction between agreements concluded inter praesentes and agreements concluded inter absentes:96 “…in truth the distinction was always unsound. If the offeree’s words of acceptance are taken to be addressed to the physical person standing in his presence who made the offer, why is the contract entered into by correspondence different? Why is the offeree’s letter of acceptance not taken to be addressed to the physical person who made the written offer which he is accepting? The offeree addresses the offeror by his assumed name in both cases. Why should this be treated as decisive in the one case and disregarded in the other?”97 Nevertheless, the majority of their Lordships in Shogun were of the opinion that when an agreement was in writing,98 the identification of the parties was a matter of construction. This approach seemed to mimic the application of the, so-called, parol evidence rule.99 The apparent simplicity of this approach does, however, mask a number of issues. 91 See [2003] UKHL 62; [2003] 3 WLR 1371 at [187], an interesting paragraph on different forms of deception. 92 Ibid at [37]. 93 (1988) 58 P & CR 156, where a test of “direct and important materiality” was proposed by Sir Nicholas Browne-Wilkinson V-C (as he then was). 94 Note that in Lake v Simmons [1927] AC 487 it was only Viscount Haldane’s obiter comments (especially at 500-1) that suggested the contract between the original parties might have been void for mistake. 95 Cf Lord Hobhouse, in Shogun [2003] UKHL 62; [2003] 3 WLR 1 371at [47], stated that in a consumer credit transaction the identity of the customer is “fundamental to the whole transaction” as it is essential to the checking of the credit rating of the borrower. 96 See also Lord Nicholls, ibid at [26]-[34]. Even Lord Phillips was “strongly attracted” to such an argument, 18 at [170]. 97 [2003] UKHL 62; [2003] 3 WLR 1371 at [70]; see also [28] per Lord Nicholls. 98 Q u a e re whether, in this context, the majority in Shog u n c o n s i d e red written contracts to include those fo rmed via the use of e-mail and fax. Lord Walker, ibid at [188], suggested they did and this is supported by other authorities; see, for example, Derby & Co Ltd v Weldon (No.9) [1991] 2 All ER 901 and Pretty Pictures v Q u i xote Films Ltd [2003] EWHC 311 at [11]. 99 See [2003] UKHL 62; [2003] 3 WLR 1371 at [49] per Lord Hobhouse, [154] per Lord Phillips and [188] per Lord Walker. Note that the Law Commission was of the opinion that the ‘rule’ was based on the intentions of the parties: see Law of C o n t ract: The Parol Evidence Rule (Law Com No. 154, Cmnd. 9700, 1986). As such, their Lordships did not distinguish between situations wh e re there was a written contract and contracts concluded by written correspondence, an approach consistent with that of the Law Commission, at 2.18. Mistake as to Identity and the Threads of Objectivity First, what is the position where A and B deal inter praesentes and make use of written documents? 100 Presumably, if the relevant documents do not make reference to the parties to the putative contract, the situation will be treated as a face-to-face dealing and the relevant presumption applied. By contrast, where the relevant documents do purport to identify the parties to the putative contract, presumably the construction approach will be appropriate if the documents were intended101 to represent the agreement, or where, although not containing all of the terms, they included some terms and identified the parties.102 This appeared to be the view of the majority of their Lordships in Shogun.103 Secondly, to what extent, if any, can extrinsic evidence be used in the construction process?104 If it is accepted that a name is essentially a label,105 there is considerable merit in Lord Millett’s argument that: “…once it is established that the person whose name and other personal details are stated in the contract and the person who stated them and signed the contract are not the same, the question immediately arises: which of them should be treated as the counterparty? Do the name and other details included in the contract refer to the person to whom they belong or to the impostor who included them in order to identify himself?…To say, as my noble and learned friend, Lord Hobhouse of Woodborough, does, that it is a question of construction which admits of only one answer, with respect simply begs the question.”106 There was, however, a divergence of opinion amongst the majority as to the extent to which it was permissible to use extrinsic evidence in the construction process. In respect of inter absentes dealings Lord Hobhouse adopted a restrictive approach, essentially only admitting extrinsic evidence where there was ambiguity or to establish that a person had signed as an agent.107 His Lordship, however, did make an exception in respect of pseudonyms and this would presumably explain King’s Norton Metal Co Ltd v Edridge, Merrett & Co.108 This approach appears consistent with the long established principle that in relation to written contracts intention is to be ascertained by reference to the language used,109 but there is some support in the case law, at least in this context, for a less restrictive approach. For example, in Cundy v Lindsay110 there is a suggestion that the result might have been different if Lindsay had not known of Blenkiron’s operations.111 For this reason Lord Phillips112 was prepared to admit “appropriate” extrinsic 100 In Shogun it was argued that the dealings took place inter praesentes through the ‘agency’ of the dealer. Lords Hobhouse and Walker thought that the dealer was not Shogun’s agent and this seems consistent with Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552. Lord Phillips had more difficulty with this point: see [176]. 101 Cf Allen v Pink (1838) 4 M & W 140. 102 See Law Commission Report, Law of Contract: The Parol Evidence Rule (Law Com No 154, Cmnd 9700, 1986), at 2.19. 103 [2003] UKHL 62; [2003] 3 WLR 1371 at [49] per Lord Hobhouse, [166] per Lord Phillips and [192] per Lord Walker. 104 Fraud and mistake are, of course, exceptions to the parol evidence rule: see Pickering v. Dowson (1813) 4 Taunt 779 and Raffles v Wichelhaus respectively. 105Ibid [120] – [122] in which Lord Phillips provides an illuminating discussion of the nature of names. 106 Ibid at [103]. 107 Ibid at [49]; cf Campbell Discount Co v Gall [1961] 1 QB 431. 108 (1897) 14 TLR 98. 109 Cf Lewison, The Interpretation of Contracts, 2nd ed, (Sweet & Maxwell, London, 1997), at 7-8. 110 (1878) 3 App Cas 459. 111 See also Boulton v Jones (1857) 27 LJ Ex 117, 118, per Bramwell B. 112 Lord Walker appeared to adopt a similar approach to Lord Phillips; see [2003] UKHL 62; [2003] 3 WLR 1371 at [188]-[192]. 19 Journal of Obligation and Remedies February 2004 evidence, although there is little discussion of when such evidence might be “appropriate”.113 Lord Phillips did, however, state that: “…a person carrying on negotiations in writing can, by describing as one of the parties to the putative agreement, an individual who is unequivocally identifiable from that description, preclude a finding that the party to the putative agreement is other than the person so described. The process of construction will lead inexorably to the conclusion that the person with whom the other party intended to contract was the person thus described.”114 Thirdly, to what extent would a different result be reached where a formal written contract resulted from the parties having dealt face to face? This issue had already been addressed by the Court of Appeal in Hector v Lyons,115 but the decision now commanded the closest scrutiny by their Lordships in Shogun. The facts were that the plaintiff, a Martin Aloysius Handel Hector, negotiated, inter praesentes, the purchase of a house from the defendant. At all times the defendant understood that she was dealing with the plaintiff. However, for reasons which are not entirely clear, when the formal contract was being drawn up the plaintiff instructed the solicitors to name his son, Martin Aloysius Handel, as the purchaser. The plaintiff then signed the contract but not with his normal signature. Subsequently, the plaintiff, claiming to be the purchaser, sought to enforce the contract. The action was rejected and the appeal dismissed, apparently on the ground that the purchaser was Mr Hector junior.116 In dismissing the appeal Sir Nicholas Browne-Wilkinson V-C, referring to the principles governing oral contracts, stated: “In my judgment the principle there enunciated has no application to a case such as the present where there is a contract and wholly in writing. There the identity of the vendor and of the purchaser is established by the names of the parties included in the written contract.”117 In Shogun Lord Hobhouse characteristically approved the decision and the reasoning in Hector v Lyons. Lord Walker thought that Hector v Lyons did not help the defendant in Shogun but stopped short of approving the decision. By contrast, Lord Phillips admitted to having: “…difficulty in understanding the basis on which the trial judge concluded that the purchaser described in the contract was the son rather than the father. The father has carried out the negotiations, he had signed the agreement, albeit not with his customary signature, and he bore the forenames and the surname of the purchaser, as described in the contract.”118 Later in his speech Lord Phillips appeared to move further from the position of Lord Hobhouse when distinguishing dealings which were exclusively in writing from dealings where there was some “personal contact”: “Where there is some form of personal contact between individuals who are conducting negotiations, this approach [identifying intention from words and conduct] gives rise to problems. 113 In Shogun there were relatively few problems in discerning intention; see, for example, Lord Hobhouse at [48]. 114 [2003] UKHL 62; [2003] 3 WLR 1371 at [161]. Quaere on this approach why the knowledge of Lindsay and Co was relevant in Cundy v Lindsay; perhaps because the goods were addressed and dispatched to “Messrs Blenkiron & Co, 37 Wood Street” whereas the firm was called ‘W Blenkiron & 20 Son’ and carried on its business at 123 Wood Street. 115 (1988) 58 P & CR 156. 116 There is some doubt whether this aspect was actually appealed: cf Shogun at [101] per Lord Millett and [166] per Lord Phillips 117 (1988) 58 P & CR 156, 159. 118 [2003] UKHL 62; [2003] 3 WLR 1371 at [166]. article header In such a situation I would favour the application of a strong presumption that each intends to contract with the other, with whom he is dealing. Where, however, the dealings are exclusively conducted in writing, there is no scope or need for such a presumption.”119 The irony here is that Lord Phillips appears to be using the "dealing" test advocated by Lord Millett; a test which emphasises the physical communication of offer and acceptance rather than the intention which lies behind that communication, typically epitomised by the name of the addressee. Perhaps in practice the difference between the approaches adopted by Lords Millett and Phillips is not as unbridgable as we have suggested? Finally, prior to Shogun it was generally assumed that in order for a ‘contract’ to be void for mistake of identity it would need to be shown that A “took all reasonable steps to verify the identity of the person with whom he was invited to deal.”120 Is this still relevant in the light of Shogun? The ‘dealing’ test’ proposed by Lords Nicholls and Millett would render such considerations redundant.121 By contrast, Lords Phillips and Walker focused, as we have seen, on h ow A demonstrated his intention and what better way of doing this than by checking C’s identity? Provided that any written evidence was not conclusive on this matter, it would seem logical to assume that the more precautions A takes, the more likely that a reasonable person will believe that A, on objective grounds, intends to deal with C not B. Does this mean that the inter absentes presumption of Lords Phillips and Walker might be rebutted where A does not make any checks? Certainly it is interesting to observe that the judges122 who were impressed by Shogun’s processes found for the claimant whereas those who ignored the claimant’s investigative processes, or were positively scathing about them,123 found for the defendant. 6. Conclusion The approaches adopted by Lords Millett and Nicholls, or by Lords Phillips and Walker, are equally defensible124. Fundamentally, the issue remains one of identifying the parties. In Cundy it is perfectly justifiable to conclude that as the acceptance was sent to B’s address, a contract between A and B resulted. Conversely, as the goods were sent to a differently named party (C) it is equally valid to suggest that no contract between A and B occurred. Neither conclusion requires recourse to the metaphysical aspects of a person’s identity, but only one can prevail if the common law is to retain the required level of certainty. Asking whether A intended to deal with B, or physically directed his offer or acceptance to B, are simple linguistic variations on the same theme; that is, who are the parties? Either test can be used, or misused, to reach artificially convenient solutions, but whether this leaves us in a better position than previously remains a moot point at present. 119 Ibid at [170] (emphasis added). 120 Cheshire, Fifoot & Furmston, Law of Contract, 14th ed, (Butterworths, London, 2001) at 280; cf. Hardman v. Booth [1863] 1 H & C 803. 121 Overall the approach of Lords Nicholls and Millett was influenced by the view that X is more innocent than A: see [35] and [82]. Cheshire, op.cit at 187, also assumes that A is normally more negligent than X. However, Lord Walker cogently argued that it is not clear that X will always be more innocent than A: see [182]. Indeed in Shogun the assistant recorder thought that Mr Hudson had acted “carelessly”: see [2001] EWCA Civ 1000 at [3]. 122 Lords Phillips and Walker: see [178] and [191] respectively. 123 Sedley LJ: [2001] EWCA Civ 1000, [2002] QB 834 at [12]. 124Although the approach of Lords Millett and Nicholls might make European harmonisation easier: see [2003] UKHL 62; [2003] 3 WLR 1371 at [86]. 21 Journal of Obligation and Remedies February 2004 Undoubtedly the speeches in Shogun will become important touchstones for any future development in cases involving mistaken identity. The importance of adopting a detached form of objective factual analysis will continue to weaken the stranglehold that Cundy v Lindsay has imposed on this area, even if the majority in Shogun did not see fit to overrule the actual decision. Moreover, the prominence given to the rules of offer and acceptance, linked with the strengthening of presumptions with regard to inter praesentes and inter absentes dealings, should discourage any future judicial examination of the difference between a person’s attributes and identity. But a considerable amount of uncertainty remains, especially with regard to the 2:2 split over the central issue of what overriding test is most appropriate for resolving issues of mistaken identity. It is indeed ironic that having largely substituted the mechanistic rules of contract formation for the, hitherto, more rarefied rules of mistaken identity, lower courts presented with similar facts will struggle to find authoritative statements of principle that commanded the support of the majority in Shogun. 22 Distributing the Burden of a Blessing DISTRIBUTING THE BURDEN OF A BLESSING Alasdair Maclean* INTRODUCTION Four years ago, in 1999, the House of Lords created a stir when it overturned a Court of Appeal judgment that had stood as apparently settled law for the previous fifteen years.1 In McFarlane v. Tayside Health Board the pursuers brought a wrongful pregnancy claim for,2 inter alia, the maintenance costs of the child born following a failed vasectomy. This part of the McFarlanes’ claim was rejected. Although their Lordships all gave substantially different judgments, it is arguable that the bedrock of the decision was that it was distributively unjust to make the Health Board liable for the costs of raising a healthy child that – as a matter of legal policy – could only be seen as a ‘blessing’. Lord Steyn made the most explicit use of distributive justice, which he suggested was the ‘real’ basis for previous decisions that rejected claims for maintenance costs. According to Lord Steyn, ‘tort law is a mosaic in which the principles of corrective justice and distributive justice are interwoven’. Although corrective justice would allow the claim, distributive justice – if placed in the hands of the ‘traveller on the Underground’ – would reject it.4 Commenting on the case, Robert Taylor QC questioned whether the same arguments would apply where the child was disabled. He concluded that: ‘The distributive justice approach to determining these issues gives rise to many such imponderables’.5 The uncertainty caused by the McFarlane judgment gave birth to a brood of wrongful birth/pregnancy claims,6 and it soon became apparent *Lecturer in medical law at the University of Glasgow. I would like to thank Professors Lindsay Farmer and Sheila McLean for their comments on an earlier incarnation. 1 Emeh v. Kensington, Chelsea and Westminster Are a Health Authority [1985] Q.B. 1012, CA; L.C.H. Hoyano, ‘Misconceptions about Wrongful Conception’ (2002) 65 M.L.R. 883, 884; A.R. Maclean, ‘McFa rlane v. Tayside Health Board: A Wrongful Conception in the House of Lords’ (2000) 3 W.J.C.L.I., at : http://webjcli.ncl.ac.uk/2000/issue3/maclean3.html (last visited 28 May 2004). 2 A ‘wrongful pregnancy’ claim is made by the parents for the costs arising from the birth of a child that they had sought to avoid. The defendant’s negligence usually relates to the performance of, or advice about, a sterilisation procedure. 3 4 5 6 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, HL. McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82-14. R. Francis, ‘Commentary on McFarlane v. Tayside Health Board’ [2000] Lloyd’s Law Reports Medical 32, 34. See also, Maclean, n 1. Terminology in this area is inconsistent, but there is reason to distinguish between two actions in this are a . Although they may also be re fe rred to as ‘wrongful conception’ cases I will use ‘wrongful pregnancy’ to re fer to those instances wh e re conception was undesired. I will restrict ‘wrongful birth’ to the cases where the claim re l ates to the negligent fa i l u re to afford the opport u n i t y to abort the fetus. See: J.K. Mason, ‘Wrongful Pregnancy, Wrongful Birth and Wrongful Terminology’ (2002) 6 Edinbu rgh Law Rev i ew 46. 23 Journal of Obligation and Remedies February 2004 that the Court of Appeal – and Lady Justice Hale in particular – was keen to minimise the scope and the impact of the House of Lords’ decision.7 Parkinson v. St James and Seacroft University Hospital NHS Trust was subsequently the first wrongful pregnancy case to reach the Court of Appeal.8 The claimant underwent a negligently performed sterilisation, fell pregnant and gave birth to a disabled child. The Court of Appeal distinguished McFarlane and found in favour of the claimant. Both Brooke and Hale L.J.J. noted and relied on the principle of distributive justice to allow recovery of the additional costs associated with the disability. As Brooke L.J. asserted: ‘I believe that ordinary people would consider that it would be fair for the law to make an award in such a case provided that it is limited to the extra expenses associated with the child’s disability’.9 In 2002, a case that was perhaps not predicted by the judges,10 reached the Court of Appeal. In Rees v. Darlington Memorial Hospital NHS Trust, it was the mother rather than the baby who was disabled. The claimant underwent a sterilisation because she suffered from progressive blindness and was concerned about her ability to care for a child. The sterilisation failed, a healthy child was born and the respondents accepted liability for negligence. The question was whether the fact of the mother’s disability was sufficient to distinguish her case from McFarlane and allow her to recover for the additional costs arising from her disability. The Court of Appeal, again relying on distributive justice,12 allowed recovery. However, when the case came before the House of Lords, the majority of their Lordships overruled the decision and,13 circumventing the distributive justice arguments that had so troubled the dissenting judge in the Court of Appeal hearing, allowed a conventional sum in recognition of the harm done to the claimant’s autonomy. In this article I will analyse the way in which distributive justice was applied in wrongful pregnancy cases. Its use raises two questions. First, are the judges justified in using distributive justice to modulate liability in tort law? Second, if it is appropriate to rely on distributive justice how should such a broad principle be applied in practice? I will begin by considering the theoretical relationship between these two types of justice and whether distributive justice has a legitimate role to play in the law of tort. I will then explore how the principle was applied in practice by analysing the judgments in the recent wrongful pregnancy cases. This discussion will highlight the difficulties that the judges caused for themselves by their reliance on distributive justice. Finally, I will consider how the majority in the House of Lords in Rees dealt with the mess that the prior reliance on distributive justice had caused. 7 8 24 For a discussion of the cases, see: Hoyano, n 1. Hale L.J.’s attitude is apparent from her judgments in Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, and the Court of Appeal hearing of Rees v. Darlington Memorial Hospital NHS Trust [2003] Q.B. 20, CA. Also, see The Rt Hon Lady Justice Hale ‘The Value of Life and the Cost of Living – Damages for Wrongful Birth’ The Staple Inn Reading (2001) 1 at: http://www.actuaries.org.uk/files/pdf/library/staple_inn _read_2001.pdf (last visited 28 May 2004) Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, CA. Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 113. 10 See Lord Steyn’s comment in Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1105 at [36], HL. 11 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, CA. 12 See discussion below. 9 13 The decision was a bare (4:3) majority of a seven judge House. Distributing the Burden of a Blessing II. TORT LAW AND THE RELATIONSHIP BETWEEN CORRECTIVE AND DISTRIBUTIVE JUSTICE Aristotle distinguished two types of particular justice: distributive and rectificatory. Distributive justice is concerned with the fair distribution of divisible resources within a community. Rectificatory justice, which is synonymous with corrective justice, is concerned with ensuring that losses and gains arising from an unfair transaction are ‘equalised’.14 For Coleman, corrective justice entails ‘the duty… to make good the victim’s loss, but only if the loss is wrongful, and only if he is responsible for having brought about the loss’.15 This characterisation, as Coleman acknowledges, begs the questions of what counts as a loss, what makes it wrongful and how responsibility should be determined? The answers to these questions may depend on context but for present purposes I am only concerned with tort law. Tort law may be analysed as a system based on the principle of corrective justice.16 This, as was noted above, still leaves the work of explaining how the law should determine the issues of loss, wrong and responsibility. It is, I submit, distributive justice that provides the explanatory power. This dependence of corrective justice on distributive justice would not be accepted by those who, like Weinrib, maintain that they ‘are structurally different and mutually irreducible… [and] cannot be assimilated to each other’.17 If Weinrib is right, then no rational system of law could simultaneously rely on both principles to determine liability.18 However, at the very least, it is arguable that corrective justice is parasitic on distributive justice for part of its normative substance.19 Although Benson argues that corrective justice is autonomous and ‘nondistributive’, his argument is predicated on the two parties to a transaction being ‘abstractly equal’.20 But, the idea of equality is a basis for distributive justice and any system that relies on equal possession of rights is a system dependent on distributive justice. Therefore, at this very primitive level, which is reflected in Rawls’ first principle of justice,21 the system of corrective justice is dependent on distributive justice. Lippke’s ‘Dependence Thesis’, goes further: he argues that it cannot be just to ‘correct’ a loss if there was no pre-existing entitlement to what is lost and that entitlement is determined by distributive justice. In other words, distributive justice establishes what counts as a wrongful loss.22 I would go even further than this and argue that, following Honoré, the relationship between the two principles is much closer.23 Honoré relies on what he terms ‘outcome-responsibility’, which is: ‘The view that those who cause harm are responsible for it’.24 This outcome-responsibility, if there is no justification for the actor’s behaviour, provides the explanatory force behind corrective justice. Since corrective justice is explained by outcome-responsibility it would be circular to suggest that outcome-responsibility is 14 Aristotle. Ethics, V. ii-iii 1130b-1132a (Thomson, J.A.K. transl.), (London 1976), 176-180. 18 Wright, n 16 above, p.172. 19 Lippke, n 16 above, p.151. 15 J. Coleman, ‘The Practice of Corrective Justice’ in D.G. Owen (ed.), Philosophical Foundations of Tort Law (Oxford 1995), 53, 56. 16 R.L. Lippke, ‘Torts, Corrective Justice, and Distributive Justice’ (1999) 5 Legal Theory, 149; R.W. Wright, ‘Right, Justice and Tort Law’ in D.G. Owen (ed.), Philosophical Foundations of Tort Law (Oxford 1995), 159, 171. 17 E.J. Weinrib, ‘Legal Formalism: On the Immanent Rationality of Law’ (1988) 97 Yale Law Journal, 949, 983. 20 P. Benson, ‘The Basis of Corrective Justice and its Relation to Distributive Justice’ (1992) 77 Iowa Law Review 515, 607. 21 J. Rawls, Justice as Fairness: A Restatement (Cambridge (Ma) 2001), 42. 22 Lippke, n 16 above, p.151. 23 T. Honoré, ‘The Morality of Tort Law – Questions and Answers’ in: D.G. Owen, (ed.), Philosophical Foundations of Tort Law (Oxford 1995), 73. 24 Ibid, p.81. 25 Journal of Obligation and Remedies February 2004 justified by corrective justice. This means that the basis for outcome-responsibility remains to be elucidated. Part of the explanation lies in the value of being seen as responsible agents who may be the subjects of reactive attitudes and who can assimilate the consequences of their actions into their identity and their life history.25 Questions of justice arise whenever there are individual gains or losses but they are particularly acute where one person gains at the expense of another. In these circumstances, justice is concerned to ensure that no individual is unfairly burdened by losses caused by another person’s attempt to accrue benefits. There are many ways of dealing with this, one of which is the libertarian approach of outcome-responsibility, which allows individuals to keep any gains while holding them responsible for any losses.26 The importance of this is not that the idea of outcome-responsibility is the best approach – an alternative might be for the community to share the gains and losses - but simply to explain that the way in which society deals with the advantage of gains and the burden of losses relies on theories of distributive justice. As Honoré argues, the distribution of risks, so that the person who stands to gain also bears the loss should a risk materialise, falls within the penumbra of distributive justice.27 The relationship between distributive and corrective justice may be further clarified by considering two alternative views of the basic structure of society.28 Society may be seen as a static structure, which comprises of institutions and individuals. Those individuals co-exist in relationships but no interactions are envisaged or taken into account. Alternatively, society could be seen as an animated structure in which interactions are acknowledged in the hypothetical: we know that they will happen and that there will be winners and losers but we do not know which individuals will actually be affected. Because the static model does not acknowledge the future interactions that will occur, it is able to divorce the principle of corrective justice from the initial distribution. However, in the animated model, where interactions are recognised, the resulting gains and losses form part of the initial distribution and corrective justice is seen as a ‘child’ of distributive justice. It is only through the static model that one can maintain the autonomy of corrective justice. This view of society, however, does not reflect the constant state of private interactions that happen daily. It is arguable that the closer a model reflects reality the better able it is to provide answers for that reality. Furthermore, there is no good reason, if we can predict that interactions will occur, why the potential outcome of those interactions cannot be dealt with in the abstract: I do not need to know whether it is A or B who acts to cause D’s loss in order to decide that it would be unfair to allow D to shoulder that loss. Therefore, it is better to construct theories of justice on the basis of an animated state. This allows the chosen system of distributive justice to determine the appropriate way to share the gains and losses of private interactions by recognising their hypothetical existence in the basic structure of society. Within this model, corrective justice is a type of distributive justice predicated on the libertarian ideal of agency and fault (allowing judgments of desert). 25 S. Wolf, ‘The importance of free will’ in J.M. Fischer, M. Ravizza (eds.), Pe rs p e c t ives on Moral Responsibility (Ithaca (NY)1993), 101; Honoré, n 23 above, p.83. 26 Lippke, n 16 above, p.153. 27 Honoré, n 23 above, p.84. 26 28 By this I mean the stage of society where the initial distribution of assets, burdens, resources, rights and responsibilities is made. This is prior to any actual interaction between persons, which might then disturb that initial distribution. Distributing the Burden of a Blessing The consequence of this argument, that corrective justice is a type of distributive justice, is that it is coherent for judges to utilise distributive justice arguments in order to limit legal liability in a system based on corrective justice. However, although the judges in the wrongful pregnancy cases may have been justified in relying on distributive justice, the question remains whether the judge can rely on any distributive justice outcome or should the choice be limited in some way? III. THE RELIANCE ON DISTRIBUTIVE JUSTICE Although not always made explicit, distributive justice is perhaps the common thread that ties together the McFarlane judgments and subsequent Court of Appeal decisions. In the sense that any limit on strictly applied principles of corrective justice may be defined in terms of distributive justice, it is arguable that all of their Lordships in McFarlane relied on it to deny recovery of the maintenance costs of the child. It is, in fact, arguable that, if outcome responsibility is seen as a negative resource, then – as suggested earlier - the very existence of tort is dependent on distributive justice.29 Until their Lordships explicitly appealed to the principle in White v. Chief Constable of South Yorkshire Police,30 distributive justice arguments were utilised through limiting devices such as the ‘fair, just and reasonable’ part of the Caparo test. In McFarlane, Lord Steyn acknowledged this intrinsic role and inevitable relationship by describing tort law as: ‘a mosaic in which the principles of corrective justice and distributive justice are interwoven’.31 Before examining exactly how distributive justice has been applied in wrongful pregnancy cases, I will briefly consider the meaning, application and limitations of the principle, as this will inform my critique. A. Distributive Justice in Principle The basic idea of distributive justice is simple; resources should be allocated fairly amongst members of the community. Although resources are most commonly thought of as tangible things, there is no reason to exclude intangibles such as the various liberties. Equally, there is no good reason to restrict the principle to desired resources. Within the community setting, the outcome of every action may be seen as a resource that must be shared fairly amongst the community’s members. Outcomes may be good or bad and accepting the associated benefit or cost is to take responsibility. If the benefits of our actions can be seen as resources then so must the costs and, like the benefits, they are subject to just allocation. While individuals may want to be seen as responsible persons they may not be so keen to bear that responsibility if it imposes a real cost. However, if it is valuable to be seen as a responsible person then outcome responsibility must sometimes be accepted. If the outcome was always predictable and never the consequence of bad luck or the influence of other persons or things outside our control it would be easy simply to hold the actor responsible for whatever he does. Instead we make judgments of control and fault. To adopt a distribution of responsibility based on control of outcome is to share responsibility on the basis of corrective justice, which is commonly seen as 29 Honoré, n 23 above, p.83. 30 White v. Chief Constable of South Yorkshire Police [1999] 2 A.C. 455, per Lords Hoffmann, Browne- Wilkinson and Steyn. 31 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 83. 27 Journal of Obligation and Remedies February 2004 the primary motivation for tort law.32 This system of distributive justice is aimed at achieving a just allocation predicated on desert. If the actor invests in an action and does so responsibly then he deserves to reap the rewards of his efforts. If, however, he is careless then he deserves to bear the costs. Unfortunately, the situation is complicated for at least four reasons. First, desert is not the only possible basis for allocating resources. Distributive justice, while simple in essence, is a contested concept precisely because there is a lack of agreement over the appropriate outcomes. Various theories have been formulated relying, for example, on egalitarianism, welfare (or utility)-based principles, resource-based principles, libertarian principles and Rawls’ Difference Principle.33 The consequence of competing theories is the creation of tension between corrective justice and the other possible distributive outcomes. Second, this tension is exacerbated because the law may not treat the individual parties in isolation. Judges must have concern for the impact of the judgment, both directly and indirectly, on the community as a whole.34 As Kirby J noted: ‘The common law does not exist in a vacuum. It is expressed by judges to respond to their perceptions of the requirement of justice, fairness and reasonableness in their society’.35 While the application of corrective justice is directly limited to the party at fault and the victim,36 distributive justice is more concerned with the wider community. Explicit reference to principles of distributive justice will naturally bring to the fore the possible effects on the community.37 In Melchior for example, Hayne J comments: ‘Despite the express disavowal of reliance on public policy, invocation of the concepts I have mentioned reveals not only that the courts must decide how the common law is to develop but also that the decision was thought, in McFarlane, to be affected by consideration of what would best reflect society’s needs and … wishes’.38 Jones has also suggested that the cost to the NHS, with resources being taken from patients needing treatment, may underlie the McFarlane decision.39 Related to this is the principle inherent to common law that like cases should be treated alike. Determining that two instances are sufficiently alike, however, is not possible without some understanding of which features are relevant to the judgment. This will be influenced by which particular conception of distributive justice the judge utilises.40 For example, relying on desert may justify excluding victims engaged in criminal or immoral activity. This may not be a problem where 32 R. Mullender, ‘Corrective justice, distributive justice, and the law of negligence’ (2001) 17(1) P.N. 35, 47. Contrary to Mullender’s argument, however, my approach posits distributive justice as the central aim with corrective justice being the primary mechanism for determining the appropriate allocation of outcome responsibility. 33 The Stanford Encyclopedia of Philosophy (2003) at: http://plato.stanford.edu/entries/justice-distributive/ (last visited 28 May 2004); J.A. Rawls, Theory of Justice (Harvard (Ma) 1971). 34 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82 per Lord Steyn. 35 Melchior v. Cattanach [2003] HCA 38, at [106]. 36 I use the terms ‘application’ and ‘directly’ here to acknowledge that, because I have argued that corrective justice is a ‘child’ of distributive justice, 28 there must be some concern with the wider community, whether in the abstract through the decision to utilise a system of corrective justice or indirectly through post hoc judgments about the actor’s responsibility for the outcome. 37 Hence the concern with awarding damages to the police in White v. Chief Constable of South Yorkshire Police [1999] 2 A.C. 455. See also, McHugh and Gummow JJ’s judgment in Melchior v. Cattanach [2003] HCA 38, at [76]. 38 Melchior v. Cattanach [2003] HCA 38, [219]. 39 M.A. Jones, ‘Bringing up Baby’ (2001) 9 Tort Law Review 14, 19. See also: Rees v. Darlington Memorial Hospital NHS Trust [2003] 3 W.L.R. 1091, 1095 at [6] per Lord Bingham. 40 Mullender, n 32 above, p.38. Distributing the Burden of a Blessing the judge has a clear idea of what he is doing. Where, however, his judgment is intuitive and perhaps subject to unarticulated influences then it risks being arbitrary. I will return to this risk of arbitrariness later, when I consider the application of distributive justice principles to the wrongful pregnancy cases. Third, where the action is performed to benefit the other party, or perhaps the community, it may be seen as unfair to hold the actor entirely responsible. If one determines justice on the basis of desert,41 then it may be reasonable to offset outcome responsibility where the actor is seen as altruistic. Although I have no direct evidence for this claim it may be that such a belief formed the basis for the argument in McFarlane, that ‘the extent of the liability was disproportionate to the duties which were undertaken and, consequently, to the extent of the negligence’.42 This is especially so given that the operation was ‘voluntary’ and for the parents’ benefit.43 The fourth reason is of a different nature to the others, in that it relates to the impact of other state interventions justified on distributive grounds. I refer particularly to the welfare state, which provides a safety net of benefits and healthcare. The fact that injured parties - if the injury prevents e.g. employment or demands special care - may receive assistance from the state reduces the need for compensation. Thus, in Melchior, Gleeson CJ comments: ‘It is also to be noted that modern governments accept a responsibility to make welfare arrangements for the benefit of supporting parents’.44 Similarly, in Rees, Lord Millett argued: Disability is a misfortune, and it is the mark of a civilised society that it should provide financial assistance to the disabled … But this is the responsibility of the state and is properly funded by taxation. It is not the responsibility of the private citizen whose conduct has neither caused nor contributed to the disability.45 These different influences suggest that applying distributive justice principles to temper corrective justice is a complex matter. It is, however, something that has long happened implicitly.46 Recently the relevance of distributive justice has been more openly acknowledged. Although each of their Lordships in McFarlane delivered distinctly different judgments, Lords Steyn and Hope explicitly referred to distributive justice47 while Lord Slynn relied on the ‘fair, just and reasonable’ test, which I have suggested was primarily predicated on distributive justice. It is also arguable that both Lords Millett and Clyde rejected the claim for maintenance costs on grounds that could be defined in terms of distributive justice even though neither made explicit reference to that principle. Subsequently, it was prevalent in both Parkinson48 and the Court of Appeal hearing of Rees.49 In the 41 G. Cupit, Justice as Fittingness (Oxford 1999), 35-63. See also, White v. Chief Constable of South Yorkshire Police [1999] 2 A.C. 455, 510-511 per Lord Hoffmann. 42 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 91 per Lord Hope. 43 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 91 per Lord Hope. Lord Hope does not explain what he means by voluntary, but in this context it may mean a lifestyle operation rather than one required to treat an underlying pathology. 44 Melchior v. Cattanach [2003] HCA 38, at [8]. 45 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1128 at [118]. 46 Mullender, n 32 above. 47 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 76 per Lord Slynn; at 82-83 per Lord Steyn; and 96 per Lord Hope. Note that Lord Millett has also argued that the ‘fair, just and reasonable’ test ‘expresses the same idea’ as distributive justice: Rees v. Darlington Memorial Hospital NHS Trust [2003] 3 W.L.R. 1091, 1124 at [105]. 48 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 104 per Brooke L.J.. 49 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 33 at [45] per Waller L.J.. 29 Journal of Obligation and Remedies February 2004 House of Lords hearing of Rees, Lords Bingham, Steyn, and Millett all explicitly considered distributive justice,50 while Lords Nicholls, Hope, and Hutton all referred to the concept of ‘fair, just and reasonable’.51 It is important, therefore to determine if there is a discernable thread that will make sense of the decisions before commenting on the majority decision in Rees. B. Distributive Justice in Practice 1. McFarlane In McFarlane, Lord Steyn delivered a powerful exhortation that the issue should be determined by the principle of distributive justice, which he defined as ‘the just distribution of burdens and losses among members of a society’.52 This definition begs the question of how this ‘just distribution’ should be determined. Instead of appealing to the more usual – though not uncontested – methods, Lord Steyn argued that: ‘What may count in a situation of difficulty and uncertainty is not the subjective view of the judge but what he reasonably believes that the ordinary citizen would regard as right’. 53 To answer this he referred to the ‘traveller on the Underground’ who, he suggested, ‘would consider that the law of tort had no business to provide legal remedies upon the birth of healthy child, which all of us regard as a valuable and good thing’.54 Apart from the possible criticisms that the answer would depend on which ‘traveller’ was asked, 55 and that the appeal to the community’s sense of what is fair is based on judicial intuition rather than empirical evidence,56 this approach conceals the basis for the judgment.57 A clue to Lord Steyn’s judgment may be found in the comment that we all regard the birth of a healthy child ‘as a valuable and good thing’.58 This belief is apparent in all their Lordships’ judgments in McFarlane.59 By focusing on the value of the child, their Lordships are perhaps primarily appealing to the distributive justice outcome of desert, which – given the distributive justification for corrective justice – may be the most appropriate;60 the parents of a healthy child should feel blessed, not burdened, by the child and so do not deserve the additional resources sought. Thus, Lord Steyn emphasised the plight of childless couples and those parents with a disabled child.61 This idea of desert is strengthened by the fact that the other party is a beneficent organisation that is a welfare resource for the whole community. Furthermore, the ‘expense of child rearing would be wholly disproportionate to the doctor’s culpability’.62 If one balances the 50 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1095 at [6], 1102 at [29], 1128-1129 at [121]. 51 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1098 at [13], 1111at [63], 1122 at [97]. 52 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82. 53 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82. 54 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82. 55 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 120 per Hale L.J.. 30 56 Melchior v. Cattanach [2003] HCA 38, at [152] per Kirby J. 57 Jones, n 39 above, p.18. 58 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82. 59 The Rt Hon Lady Justice Hale, n 7 above, p.12. 60 This approach was made explicit in White v. Chief Constable of South Yorkshire Police [1999] 2 A.C. 455 at 510-511 per Lord Hoffmann. It may be relevant that Lord Steyn was a judge in both White and McFarlane. 61 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 82. 62 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 106 per Lord Clyde. Distributing the Burden of a Blessing two parties then neither the parents nor the Health Board deserve the distribution of responsibility that would be afforded by a strict application of corrective justice. Although less obvious than desert, their Lordships may also have had in mind a welfare-based principle. Given that the state provides welfare support, healthcare and education for children there was no critical need for the maintenance costs to be met. This is especially so where the other party is the provider of that state funded healthcare.63 Finally, it is also possible to speculate on underlying ideas of equality. Many families have unplanned children and have to deal with the costs of raising the child. The degree of negligence was small. Therefore, it would be treating the McFarlanes preferentially to ask the Health Board to fund the child where those other families have to meet the costs without such a redistribution of resources. This is especially so given that the state provides free education, free health care and child benefit payments to all families. In her speech to the Faculty and Institute of Actuaries, Lady Justice Hale gave an eloquent account of the impact on the woman of pregnancy and childbirth.64 She described the physical effects, the cost and the lifestyle implications that are caused by having a child and it is clear that she was in favour of allowing recovery for the maintenance costs of a healthy child. Although not explicit, her speech attacks the desert-based distributive justice approach of their Lordships in McFarlane. This position is also reflected in her judgments in both Parkinson and Rees. In those cases, however, the Court of Appeal was constrained by the McFarlane judgment. 2. Parkinson In Parkinson, which was a wrongful pregnancy case involving the birth of a disabled child, Hale L.J. noted that: ‘Distributive Justice is concerned with fairness, not only between different classes of claimant and defendant, but also between different classes of potential claimant… This may explain why Lord Steyn compared Catherine’s parents with the unwillingly childless or the parents of a disabled child: they are so much better off’.65 This comment hints at a mixture of desert and need as possible bases that might allow recovery for the costs associated with the disability. However, she later emphasises the equal worth of the disabled child and refines her argument to one of need.66 In order to avoid the consequences of McFarlane, Hale L.J. relied on her flawed and heavily criticised analytical device of a ‘deemed equilibrium’. This allowed her to argue that the extra costs associated with the ‘need’ consequent upon the disability upset this equilibrium and so might be re c ove re d .67 The traveller on the Underground would think it fair, just and ‘proportionate’ to allow recovery of the costs required to meet the extra ‘needs’ of the family with the disabled child.68 Brooke L.J. noted the recent explicit reliance on the principles of distributive justice in White and McFarlane, and he then relied on it to provide his seventh and final reason for distinguishing the 63 See: Jones, n 39 above, p.19. 64 The Rt Hon Lady Justice Hale, n 7 above, pp.21-26. 65 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 120. 66 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 123. 67 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 123. 68 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 125. 31 Journal of Obligation and Remedies February 2004 disabled from the healthy child.69 His other reasons were: 1. the birth of the disabled child was foreseeable; 2. the group of affected persons was limited; 3. there was no difficulty in accepting that the surgeon assumed responsibility; 4. the purpose of the operation was to avoid any further children, including ones with a disability; 5. recovery of such damages had, prior to McFarlane, been settled law for fifteen years so it was not a ‘radical step… into the unknown’; and 6. it was fair just and reasonable to allow recovery. Brooke L.J.’s sixth reason is arguably indistinguishable from the use of distributive justice (see above) and reasons 1, 2, 4, and 5 apply just as much to the healthy child as to the child with a disability. This leaves only the assumption of responsibility and the principles of distributive justice to distinguish the claims. In McFarlane, Lord Slynn argued that the doctor does not assume responsibility for the maintenance costs. Ignoring the criticism of the test that it is a conclusion presented as a premise,70 there is no good reason, unless one appeals to principles of distributive justice, why a doctor should have accepted responsibility for the costs of the child’s disability if he does not assume responsibility for the maintenance costs.71 In a case, such as Parkinson, where the sterilisation was performed to avoid the birth of any children and not specifically to avoid the birth of a disabled child, the purpose of the operation cannot provide a reason to distinguish the disabled child. Furthermore, while the disabled child may be foreseeable, the healthy child is more likely, so, if the doctor had the consequences of carelessness in mind, it is more reasonable to suggest he assumed responsibility for the maintenance costs than for the costs of the disability.72 The only way to distinguish the two is to appeal to distributive justice outcomes like desert, welfare or need. Thus, the only determinative part of Brooke L.J.’s judgment is his reliance on distributive justice.73 Although Brooke L.J. does not explain exactly how he would determine what is just, his reliance on the US case Fassoulas v. Ramey,74 suggests that – like Hale L.J. – it was the extra need associated with the disability that made the difference.75 69 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 113. 70 The doctor is not liable (conclusion) because he has not assumed responsibility (premise), but he has not assumed responsibility because that is what the judge has decided (conclusion) from the circumstances of the case. See K. Barker, ‘Unreliable assumptions in the modern law of negligence’ (1993) 109 L.Q.R. 461, 471. At 483, Barker complains that the test has ‘veiled the operation of important policy concerns’. 71 Walker L.J. categorised ‘assumption of responsibility’ along with ‘fair, just and reasonable’ as the way the law gives ‘substance and effect’ to the ‘court’s moral intuition’, which suggests that the label is hiding the real, but unarticulated, reason for the decision: Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 30-31at [33]. 72 See: Hoyano, n 1 above, p.891. See also Hale L.J.’s 32 argument that: ‘In real life it is impossible to separate the doctor’s assumption of responsibility for preventing pregnancy from the assumption of responsibility for preventing parenthood and the parental responsibility it brings. The two go hand in hand just as pregnancy and child birth go hand in hand’: Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 29 at [24]. 73 Waller L.J. argues, in his dissenting judgment in the Court of Appeal hearing of Rees, that – of Brooke L.J.’s seven approaches - only distributive justice or the ‘fair, just and reasonable’ test distinguish the disabled for the healthy child: Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 33 at [44]. 74 Fassoulas v. Ramey 450 So.2d 822, 824 (1984). 75 Parkinson v. St James and Seacroft University Hospital [2001] EWCA Civ 530, [2001] 3 All E.R. 97, 112. Distributing the Burden of a Blessing 3. Rees in the Court of Appeal The reliance on need was again apparent in Hale L.J.’s judgment in the Court of Appeal hearing of Rees. For example, Hale L.J. argued that: ‘[T]he distinction between an able-bodied parent and a disabled parent… [is that she] needs help if she is to be able to discharge the most ordinary tasks involved in the parental responsibility which has been placed upon her as a result of the defendant’s negligence’.76 She later notes that allowing recovery will not overcompensate the disabled mother, but will simply ‘put … [her] in the same position as her able-bodied fellows’.77 Although Hale L.J.’s judgment may be criticised for basing her argument on the need for support to avoid the child being taken into care78, this does not detract from the point that she saw the distributive principle of need as a means of distinguishing the cases of the disabled parent or the disabled child from those where both parent and child are healthy. Walker L.J. is less clear in his justification for allowing recovery. He refers at one point to the ‘court’s moral intuition…given legal substance and effect … by applying the three-stage Caparo test’, which would not be ‘offended’ by allowing recovery where the parent is disabled.79 He then justifies this by noting that: ‘Disabled persons are a category of the public whom the law increasingly recognises as requiring special consideration’.80 Walker L.J. points to the Disability Discrimination Act 1995 as indicating the legislative concern. However, it is not the disability per se that is the concern. Rather, it is the fact that disabled persons are disadvantaged in a world designed for the able-bodied. As such, special consideration is required to level the playing field. It is not the disability, but the need generated by the practical consequences of the disability that demands special provision. It is hoped that Walker L.J. was not being discriminatory in singling out the disabled in these circumstances – and so ‘foster[ing] a culture of helplessness and victimhood’81 - but rather that he simply failed to articulate the real distributive justification of a critical need. The dissenting judge, Waller L.J., focused explicitly on distributive justice as the determinative principle.82 This was crucial to his decision to reject the claimant’s case because the principle did not allow a distinction simply because the mother was disabled prior to the pregnancy. He raised a number of counter examples where the presence of a disability might not be determinative on distributive justice grounds, such as the disabled but rich parent, or the disabled parent who can cope with the assistance of family and friends.83 On the other side of the coin was the healthy parent who is so stretched financially and socially that the new child is the final straw and causes ‘a crisis in health terms’. Under McFarlane, he argued, this woman would not be allowed to recover, even though her health was at stake, but if decisions are made on the basis of need then 76 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 28 at [22]. 77 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 28 at [23]. 78 See Hoyano, n 1 above, p.900. 79 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 30-31 at [33]. 80 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 32 at [38]. 81 Hoyano, n 1 above, p.900. 82 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 33 at [44]. 83 See, for example, AD v. East Kent Community NHS Trust [2002] EWCA Civ 1872, [2003] 3 All E.R. 1167, in which a disabled woman was denied recovery because she was institutionalised and her mother would be assuming the parental role. Why should Ms Rees situation be treated differently given that she was receiving support from her mother and other relatives? See: Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.L.R. 1091, 1100 at [23] per Lord Steyn. 33 Journal of Obligation and Remedies February 2004 she has as good a case as Ms Rees.84 Although the law has traditionally been reluctant to take account of impecuniousness, if McFarlane is an exception to recovery rather than the rule, and if that exception is limited by the distributive justice principle of need, then there is no good reason why the need created by adverse social circumstances (a social disability) should not also fall outside the exception. 4. Rees in the House of Lords – the minority judgments In the House of Lords, Lord Steyn argued that the ‘legal policy’ behind the McFarlane decision was ‘critically dependent on the birth of a healthy and normal child’.85 Since this did not apply to a disabled child, he concluded that normal principles of corrective justice would allow recovery of the costs associated with the disability and Parkinson was rightly decided. Rees, however, could not be seen as ‘unaffected by the principle in McFarlane’.86 He then considered Waller L.J.’s objections and concluded that ‘there is an element of arbitrariness involved in holding that only the disabled mother of a healthy and normal child can claim damages’.87 Despite noting that ‘it is of prime importance that the law avoid arbitrariness’ he was ‘persuaded that the injustice of denying to such a seriously disabled mother the limited remedy of the extra costs’.88 As I have already discussed, in McFarlane Lord Steyn’s judgment suggested that justice was determined primarily according to desert, with welfare possibly also being an influence. The real basis for his judgment in Rees is, like his judgment in McFarlane, unexplicated. It is, however, perhaps similarly based on a mixture of distributive ends with desert again being a primary motivator. This suggestion is triggered by Lord Steyn’s reference to Walker L.J.’s claim that the law sees disabled people as worthy of ‘special consideration’.89 The issue is complicated by the ‘arbitrary’ comment. This might simply mean that Lord Steyn recognises that varying a judgment because of the disability itself, rather than because of the consequences is arbitrary. It may also indicate that his judgment was instead predicated on need or welfare based considerations, which arise as a result of the disability. This would be arbitrary because the socially disabled parent may be just as much, or even more, in need of assistance. It would, therefore be speculative to draw a firm conclusion as to which of these positions best represents Lord Steyn’s judgment. Lord Hope summed up the ratio of his judgment in McFarlane as being ‘the insuperable problem of calculation’.90 He argued that there could be no duty of care to avoid damage that is incapable of valuation. Thus, the distribution of outcome responsibility falls entirely on the victim of the legal wrong. It is submitted, however, that his argument was a smokescreen; an attempt to give logical respectability to an intuitive judgment that recovery of the maintenance costs of a healthy child would not be just. Had he intuitively thought that recovery would be just, it is unlikely that 84 Rees v. Darlington Memorial Hospital NHS Trust [2002] EWCA Civ 88, [2003] Q.B. 20, 35 at [5355]. 85 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1105 at [35]. 86 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, at [37]. 87 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1106 at 34 [38]. 88 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1106-1107 at [38-39]. 89 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1106 at [39]. 90 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1108 at [51]. Distributing the Burden of a Blessing he would have allowed the somewhat arbitrary nature of allotting a sum to the benefits of having a child to have prevented him from making an award.91 In McFarlane, Lord Hope also made reference to distributive justice, and he concluded that it would not be ‘fair, just and reasonable’ to allow recovery without taking the benefits of the healthy child into account.92 This perhaps suggests that Lord Hope was, like Lord Steyn, judging the distribution of outcome responsibility primarily on the basis of desert. In a logically flawed argument Lord Hope sought to explain the Parkinson decision. Presumably not wanting to suggest that the disabled child was not equally a blessing he argued that ‘Here too there is the inevitable mixture of costs and benefits, of blessings and detriments, that cannot be separated. One cannot begin to disentangle the complex emotions of joy and sorrow and the intangible burdens and rewards that will result from having to assume responsibility for the child’s upbringing’.93 He then notes the extra costs associated with the disability. This is undeniable, however, if the benefits and burdens are inseparable how can the net costs attributable to the disability be determined? In setting the scene still further he quoted Professor Mason’s comment that ‘love in the context of disability has to be backed by corresponding supportive resources’. With respect to both Professor Mason and Lord Hope, it is unclear why this statement does not equally apply to the healthy child; love in the context of raising a child always has to be backed by supportive resources94. The distinction is simply a matter of degree and if, as Lord Hope95 argued, the balance of benefit and burden was impossible for the healthy child it is equally impossible for the disabled child. Lord Hope perhaps was aware of the fallacy of his argument when he argued that Lady Justice Hale’s ‘deemed equilibrium’ was misconceived since any such calculation or balancing ‘was impossible’.96 In a sudden, and wholly illogical, volte-face he asserted that, instead of an ‘equilibrium’ there was ‘an element of symmetry… inherent in the exercise’.97 This ‘symmetry’ may be disturbed if either the child or the parent is disabled. It is submitted that any distinction between an ‘equilibrium’ and a ‘symmetry’ is spurious, and Lord Hope’s reasoning has the feel of someone who has dug a hole and is desperately scrabbling to get out. Lord Hope then 91 See, for example, McHugh and Gummow JJ’s argument that ‘In assessing damages, it is impermissible in principle to balance the benefits to one legal interest against the loss occasioned to a separate legal interest’. Thus, a worker forced to retire because of a negligent injury would not have his damages reduced by taking into account the benefit of not having to go to work every day: Melchior v. Cattanach [2003] HCA 38, at [90]. This was also the position Lord Clyde adopted in McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 103. See also, Hayne J’s argument that: ‘the law has long since sought to measure pain and suffering in amounts of money. Measuring the converse experience in money is no more or less absurd, or difficult’: Melchior v. Cattanach [2003] HCA 38, at [200]. 92 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 97. 93 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1110 at [56]. 94 Mason, n 6 above, p.58. 95 In fact, Lord Hope has quoted Professor Mason out of context. That particular quote was made as part of a discussion of wrongful birth rather than wrongful pregnancy. Although a similar comment is made in relation to Hale L.J.’s judgment in Parkinson, (also cited by Lord Hope), Mason notes in that case that: ‘The outstanding feature of Hale L.J.’s argument is that… it can be applied almost verbatim to the wrongful pregnancy terminating in a normal child. The basic obligations of parenthood are the same irrespective of the health status of the child. The simple fact is that, the more disabled is the child, the more difficult it is to fulfil those obligations’; Mason, n 6 above, p.64. 96 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, at 1110 at [59]. 97 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, at [60]. 35 Journal of Obligation and Remedies February 2004 acknowledged the problems posed by Waller L.J.’s arguments regarding the parent whose health is jeopardised by the new child. In holding that the disabled parent should be able to recover the additional costs, he asserted that: ‘The seriously disabled parent is in a different category. It is the inescapable fact of her disability which marks the case of the seriously disabled parent out from these other cases [such as social deprivation]’.98 The distinction, he suggested, arose because the ‘seriously disabled parent cannot, however hard she tries, do all the things that a normal, healthy parent can do when carrying out the ordinary tasks involved in a child’s upbringing’.99 As with Lord Steyn’s judgment it is difficult to be certain whether this is a desert-based, needbased, welfare-based or an intuitive mix of those ends. If it is the disability per se, with the consequential frustration at her reduced ability and reduction in the ‘joy’ of caring for a child, then this may be seen as a desert-based argument. If it is based on the costs of meeting the additional help required then it is a needs-based argument, while if it is based on the best distribution to ensure the well-being of all concerned (which, because the other party is the NHS, includes the whole community) then it is a welfare-based argument. Whichever of these, or even if a tangled mess of all three, the line drawn between recovery and non-recovery is arbitrary. Lord Hope’s judgment is not saved by his fatally flawed ‘symmetry’ argument, which – it is submitted – only serves to conceal a more intuitive judgment based on unarticulated distributive justice goals. Lord Hutton’s judgment was the most enigmatic. He argued that McFarlane was decided on the basis of what was ‘fair, just and reasonable’.100 Because there was ‘a clear distinction between a disabled mother and a mother in normal health’ it was ‘fair, just and reasonable’ to allow recovery. Although Lord Hutton did not really explain why he decided that the mother’s disability was a legally relevant distinction, the reliance on the ‘fair, just and reasonable’ test again suggests an intuitive distributive justice approach. It may further be argued that his approach was based on need, or perhaps welfare, because of his reference to Waller L.J.’s socially disadvantaged woman as being a ‘hard case… very close to the line which divides recovery from non-recovery’.101 Before considering the majority’s approach in the House of Lords hearing of Rees, I will briefly consider the limitations of distributive justice in this context. I will begin by considering these in general before looking at the difficulties engendered by the way the principle has been utilised in the wrongful pregnancy cases. 5. The limits of distributive justice For the courts, distributive justice provides a recognised principle that may be used to modulate negligence liability. Although this may initially have been thought by the judges to allow them to distance their judgments from policy, it is apparent from the subsequent recourse to ‘legal policy’ that this is not so.102 This may mean that the courts will have to be more consistently open about 98 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1112 at [65]. 99 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1112 at [65]. 100 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1122 at 36 [97]. 101 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1122 at [97]. 102 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1095 at [6] per Lord Bingham; 1102 at [29] per Lord Steyn; 1109 at [52] per Lord Hope; 1124 at [105] per Lord Millett Distributing the Burden of a Blessing the use of policy, which should improve consistency and predictability. Simply being open about the relevance of distributive justice, previously more usually associated with political rather than legal decision making, is a step in the right direction.104 However, the main problem with the way the courts have approached the use of distributive justice is that the judges who have relied on it have failed to explain exactly how or when the principle bites.105 Reference to the ‘traveller on the Underground’ obscures rather than clarifies and, while certain distributive outcomes may be elucidated, it remains uncertain which carry the most weight, which – if any – are determinative and whether the judge is consciously applying an outcome or merely struggling to explain an intuition.106 Mullender suggests that the courts’ ‘thinking is informed by the conception of distributive justice as impartiality’. This would be compatible with an appeal to community values, which implies political neutrality, but it still leaves unanswered the question of ends.107 The choice between different goals may well affect the appropriate distribution of outcome-responsibility.108 Deciding on the basis of desert, for example, may lead to different conclusions to the same question decided on the basis of need, or welfare. The variety of possible outcomes imbues distributive justice with great flexibility, which may be attractive to judges trying to do justice in a wide range of circumstances. However, it also raises the problems of consistency and predictability, which will be exacerbated where the judge fails to be clear on the appropriate outcome. It also raises the issue of which distributive goals are legitimate tools for the judiciary. Put the other way around, are there any outcomes which are the territory of government and not the courts? Finally, as Mullender notes, there is also uncertainty when the principle may be called on to modulate the principle of corrective justice.109 He suggests that the law could adopt the European principle of proportionality, which would restrict the use of distributive justice to those occasions when it was ‘strictly necessary in order for publicly beneficial goals to be effectively pursued’.110 While this test may provide a valuable check on judicial prerogative, it is itself a vague principle open to interpretation and intuition. In many cases it also leaves the judge with the unenviable task of deciding what is ‘strictly necessary’ in the absence of adequate empirical evidence. It also risks pre-empting political decision-making. For example, in the wrongful pregnancy scenario, concern that an award will take money away from patient care may, under the proportionality principle, justify rejecting the claim. This justification relies on the NHS budget being fixed and outside judicial influence. However, if the award is made then the Government can decide whether or not to buffer the impact by redirecting funds or even increasing tax, which would mean that the victim’s loss was widely spread with no single individual being asked to shoulder the cost. The point is even more cogent as it was a political decision to establish the state funded NHS indemnity scheme rather than rely on private insurance. 103 J. Steele, ‘Scepticism and the Law of Negligence’ (1993) 52(3) C.L.J. 437, 467. 104 Mullender, n 33 above, p.47. 105 ibid, p.49. 106 ibid. 107 ibid. Mullender is alert to this problem. 108 By appealing to the ‘traveller on the Underground’, Lord Steyn attempted to evade the issue but it remained possible, as I have argued, to detect certain implied ends. 109 Mullender, n 32 above, p.49. 110 ibid. 37 Journal of Obligation and Remedies February 2004 6. The difficulties of the distributive justice approach in wrongful pregnancy In this section, I will consider the difficulties that the courts created for themselves in trying to apply distributive justice in the McFarlane, Rees and Parkinson decisions. The starting point is to note that, as I have already argued, the courts have perhaps applied multiple and different outcomes depending on the circumstances of the case. In McFarlane, their Lordships appear to have followed White and limited liability on the grounds of desert. The decision was also supported by appeal to welfare-based arguments. When the Court of Appeal came to determine the issue where the child was disabled, desert was dropped from the argument and replaced by need. This allowed the court to focus on the extra costs that would be associated with the disability rather than having to argue that the disabled child was not the blessing that was a healthy child.111 Another problem with reliance on desert is that, when applied to allow recovery for the disabled child, it means that the courts see the parent with a disabled child as more deserving than parents with a healthy child. In wrongful pregnancy cases the parents in these two situations have acted with an equal sense of responsibility in seeking to manage their families. In order to justify a distinction between the parent with a disabled child and the parent with a healthy child, it might be suggested that the parent with the disabled child is more virtuous for deciding to keep the child despite the disability; the seriously disabled child is likely to be more demanding to care for than would a healthy child. However, such an argument may imply that the disabled child is more trouble than he is worth and it ignores the fact that parental responsibility is not diminished simply because the child is disabled. The only other way of distinguishing the cases on the basis of desert is to argue that the healthy parents of a healthy child are somehow to blame for their situation while the disabled parent or the parent with a disabled child are not. Since, as I noted earlier, both parents have acted responsibly in seeking sterilisation, this suggestion has little foundation. It might, however, gain some support if relied on in combination with a need-based justification. In this scenario, the disabled parent’s additional needs are not her fault because the disability was not of her doing. On the other hand, it may be argued, the healthy parent only has herself to blame if the birth of an unwanted child creates a critical need for the maintenance costs to be met by the tortfeasor. Physical disability is not the person’s fault but social deprivation is. Perhaps the most obvious criticism of this argument is that relies far too heavily on sweeping generalisations. Some people become disabled through their own actions and may be seen as at fault and social deprivation is far too complex an issue to allow the individual to be blamed without an in-depth consideration of that individual’s life. Long standing social inequality and lack of opportunity may be more to blame than the individual. The parent’s social deprivation is arguably the state’s fault, rather than that of the tortfeasor, and it may therefore be suggested that the state should share the parent’s outcome responsibility for the maintenance costs. However, 111 This perhaps allows the argument from distributive justice to avoid the criticism levied by McHugh and Gummow J.J. that: ‘The differential treatment of the worth of the lives of those with ill health or disabilities has been a mark of the societies and political regimes we least admire’: Melchior v. Cattanach [2003] HCA 38 at [78]. In Lee v. Taunton and Somerset NHS Trust [2001] 1 F.L.R. 419, 430, Toulson J was prepared to argue that the birth of a disabled child 38 was not a blessing (I thank the anonymous reviewer of my case comment submitted to the Web Journal of Current Legal Issues for pointing this out). Toulson J., however, appears to be outgunned by other – and more senior – judges who have avoided this conclusion. See: Rees v. Darlington Memorial Hospital NHS Trust [2003] 3 W.L.R. 1091, at 1110 (per Lord Hope), 1135-1136 (per Lord Scott) and 1126 (per Lord Millett). Distributing the Burden of a Blessing since the welfare state also exists to support and enable the disabled, the same argument may apply to the disabled parent. Thus desert, either alone or in combination with need, is unable to justify a distinction between the healthy parent/child and the healthy parent/disabled child or disabled parent/healthy child. Given these arguments, it is perhaps unsurprising that the Court of Appeal chose to distinguish the scenarios on the basis of need. The problem with need, at least in an unqualified sense, is that it also fails to distinguish between the healthy and disabled. While disability may be one reason behind a need-based argument it is not the sole source of need. Waller L.J. was alert to this issue in Rees when he noted that the rich disabled parent might be less needy than the socially deprived woman whose health may be put at risk by the new child. Professor Mason has also noted this problem. Commenting on Parkinson, he states: ‘The outstanding feature of Hale L.J.’s argument is that, alone among the various analyses, it can be applied almost verbatim to the wrongful pregnancy terminating in a normal child’.112 The advantages of focusing on disability are that it creates a more visible distinction than the claim that one is socially deprived and it relieves the court of the need to engage in the process of means testing. The problem is that to focus on disability per se is discriminatory unless there is a distributive outcome that justifies the distinction. However, as I have argued, neither desert or need support the difference that the courts have sought to make between the healthy parent/child and the healthy parent/disabled child or disabled parent/healthy child. This leaves the courts open to the criticism, of which their Lordships in Rees were aware, that they have developed an arbitrary law. This arbitrariness, while it may meet the needs of some families ignores those of others who are no less deserving. To focus on disability per se, rather than on any source of critical need, is to court criticism for casting the disabled as helpless victims and does an injustice to those whose needs derive from a different source.113 It is ironic that, in seeking to achieve substantive justice, the appeal to distributive justice in fact formalised substantive injustice.114 7. Rees in the House of Lords – the majority judgments The reliance on distributive justice in McFarlane might not have caused problems had the lower courts not decided to distinguish the disabled child, and then the disabled parent. This approach developed, at least in part, because the lower courts were unhappy with the House of Lords decision and were looking to find ways around it. Lady Justice Hale’s feelings on the judgment are made abundantly clear in her Staple Inn Reading,115 and were noted by Lord Scott in Rees who stated: ‘I suspect that underlying the majority decision in the Court of Appeal lies the thought that McFarlane was wrong and a desire to limit its effect as much as possible’.116 Perhaps because of this, the judges in favour of allowing recovery resorted to arguments that are superficially appealing but fail, when subject to analysis, to justify distinguishing serious disability as a criterion for recovery. 112 Mason, n 6 above, p.64. 113 Hoyano, n 1 above, pp.900-901. 114 This statement refers to the situation prior to the House of Lords hearing in Rees. 115 The Rt Hon Lady Justice Hale n 7 above, pp.20-25. 116 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1135 at [143]. 39 Journal of Obligation and Remedies February 2004 This failure supports Hoyano’s criticism that: ‘The reasoning in these cases shows how far negligence law has come adrift of principle’.117 Recognising the validity of Hoyano’s point, Kirby J, in the Australian case Melchior v. Cattanach, argued that: ‘The decisions in England and Scotland since McFarlane … provide a preview, and a warning, against following the same course in Australian law’.118 This case was decided,119 allowing recovery of the maintenance costs incurred in raising a healthy child, shortly before the House of Lords hearing of Rees. However, even had any of their Lordships been persuaded by the case, they saw themselves as bound to follow McFarlane not least because it was such a recent decision. As Lord Bingham put it: ‘It would reflect no credit on the administration of the law if a line of English authority were to be disapproved in 1999 and reinstated in 2003 with no reason for the change beyond a change in the balance of judicial opinion’.120 This left them with difficult task of rationalising the tangled mess of partially or wholly unexplicated distributive justice arguments unleashed in the previous judgments. The minority, as has already been noted, decided to accept the mess of principle in an attempt to provide substantive justice to the claimant before them, despite acknowledging that this created an arbitrary and substantively unjust distinction between different claimants. The majority, however, chose to avoid the mess by mapping out a new destination, namely reproductive autonomy. Following Lord Millet’s lead from his judgment in McFarlane, they argued that there should be no recovery of maintenance costs for a healthy child irrespective of whether the parent is disabled. Instead, the law should recognise that the parent’s autonomy has been infringed since her choice to limit the size of her family has been undermined. For Lord Millett: ‘This is an important aspect of human dignity, which is increasingly being regarded as an important human right which should be protected by law. The loss of this right is not a theoretical or abstract one’.121 Since an infringement of the right was not quantifiable, the majority awarded a conventional sum of £15,000. The majority were criticised by the minority for failing to explain the justification for this award, which the majority described as a ‘gloss’ but the minority classed as ‘a radical and most important development which should only be embarked on after rigorous examination of the competing arguments’.122 It is true that, apart from arguing that it would be unjust not to award some measure of damages in recognition of the negligent frustration of the claimant’s autonomous decision to limit the size of her family, the majority did not justify their resort to a conventional sum. However, this may have been because they believed that the justification was sufficiently obvious not to require explication. The award of general damages itself is accepted as reasonable and may be granted to compensate for the ‘diminution of value’ resulting from a ‘loss of amenity’. Such an award is available at the top of the scale to permanently unconscious claimants. While the Law Commission was against such an award they recommended retaining it because of the level of 117 Hoyano, n 1 above, p.892. See also, Lord Millett’s criticism of the use of distributive justice by the Court of Appeal: Rees v. Darlington Memorial Hospital NHS Trust [2003] 3 W.L.R. 1091, 1129 at [121]. 118 Melchior v. Cattanach [2003] HCA 38, at [128]. 119 By a bare majority of 4:3. 120 Rees v. Darlington Memorial Hospital NHS Trust 40 [2003] UKHL 52, [2003] 3 W.LR. 1091, 1096-1097 at [7]. 121 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1129 at [123]. 122 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1107 at [43]. Distributing the Burden of a Blessing support received from consultees123. One of the main reasons underlying the support was the: ‘unconscious victim’s complete loss of amenity’, and ‘[f]ailure to recognise this would be to undervalue and trivialise their experiences’.124 While loss of amenity is not synonymous with loss of autonomy I would argue that, because autonomy may enhance or enable enjoyment of life, loss of autonomy is subsumed by loss of amenity. Thus, English law already recognises a diminution of autonomy as a suitable basis for the award of a conventional sum. If this argument is not accepted then consider the relevance of the Human Rights Act 1998 (HRA). This Act effectively incorporates the European Convention on Human Rights and Article 8 of this Convention protects the individuals right to a private and family life. It is, I would suggest, not particularly contentious to argue that this would include the right to determine the size of one’s own family, constrained - of course – by nature’s generosity125. Since the courts are supposed to develop the law in accordance with the HRA,126 any infringement of a protected right should be compensated irrespective of whether the complaint involves a pleaded breach of the HRA. In Cornelius v. De Taranto, for example, the court held that damages for a breach of confidence should be more than nominal because it involved a protected right.127 Thus, it is submitted that, even though the justification for a conventional sum was not fully explicated, it is a defensible award. If the legal rule determined by McFarlane is that no award of damages may be made to cover the maintenance costs of a healthy child then the award of a conventional sum for loss of autonomy is not precluded. Calling it a ‘gloss’ may be an understatement, but I would argue that it is a smaller step than the arbitrary award to cover the costs arising from the parent’s disability.128 The beauty of such an award is that it makes no unjustly arbitrary distinction between the claimants, all of whom will receive the same award. It will also make it considerably easier to come to an out of court settlement since there will be no need to haggle over the projected expenses of raising a child or the impact of a disability on those costs. It is, however, a risky strategy. It is risky because it may end up pleasing no one, except perhaps the NHS. Given the potential costs involved in raising a child, the parents of a healthy child may still feel hard done by. Disabled parents may feel aggrieved because the comparatively small award is unlikely to meet the additional costs incurred because of their disability. Those in favour of a full award in line with corrective justice principles may feel 123 The Law Commission, Report No 257, Damages for Personal Injury: Non-Pecuniary Loss (1998) 6-9, at: http://www.lawcom.gov.uk/files/lc257.pdf (last visited 28 May 2004). Such an award had been approved by the House of Lords in West v. Shephard [1964] A.C. 326. 124 ibid, p.7, para. 2.13. 125 In Greenfield v. Flather [2001] EWCA Civ 113, (2001) 59 B.M.L.R. 43, 55 Buxton L.J. argued that a claim to a right not to have a family is an ‘unpromising basis for an application under art 8’. Buxton L.J.’s assertion gains its credibility from the way it is structured. Article 8 is concerned both with private and family life, which includes the right to selfdetermination. If the argument is expressed as the negative right to control over the size of one’s family then it seems a far more promising claim. If one’s control is undermined by someone else’s action – whether intentional or negligent – it is reasonable to complain that one’s autonomy has been interfered with, and it is autonomy that grounds Article 8 (see D. Feldman, Civil Liberties and Human rights in England and Wales, 2nd ed., (Oxford 2002), 568. 126 HRA, s 6(1)-(3); J. Wadham, H. Mountfield, A. Edmunds, Blackstone’s Guide to the Human Rights Act 1998, 3rd ed., (Oxford: Blackstone’s Press 2003), 12; A. Maclean, ‘Crossing the Rubicon on the Human Rights Ferry’ (2001) 64(5) M.L.R. 775. 127 Cornelius v. De Taranto [2001] E.M.L.R. 12, 329, 344, at [66], HC. This aspect of the case was upheld on appeal without comment on this point: (2002) 68 B.M.L.R. 62. 128 Peter Cane suggests that the majority’s solution is open to criticism, but not on the basis of ‘judicial overreaching’. See, P. Cane, ‘Another Failed Sterilisation’ (2004) 120 L.Q.R. 189, 191. 41 Journal of Obligation and Remedies February 2004 that the solution fails to do justice and those who believe McFarlane was a wholly just decision may feel that the judgment has been undermined.129 8. A distributive analysis of the award of a conventional sum Although I have described the use of a conventional sum as a way around the mess that resulted from the use of distributive justice, I am not suggesting that it avoids any reliance on distributive justice. In fact, the side step comes from the characterisation of the damage as an infringement of parental autonomy and this permits the majority to soften the distributive harshness of McFarlane since it allows the loss to be more evenly shared between the two parties rather than require that it fall entirely on the parents. However, since the award is made in recognition of the harm rather than full compensation for the claimant’s loss it perhaps reflects a desert-based argument rather than the need-based distributive justice approach that had caused the mess in the cases following McFarlane. Because corrective justice is a desert-based type of distributive justice, the use of similar arguments to control liability is more coherent and consistent than the use of other distributive outcomes. An appeal to ‘need’ is particularly problematic because it encroaches into the territory of the welfare system. To really assess the need of the parties would require the courts to means test both the claimant and the defendant, which is something it is not really equipped to do, especially where the defendant is a body like the NHS, whose funds are determined (and hence whose needs are met) by Government. The judges’ focus on the disability itself, rather than the needs that arise as a consequence of the disability, illustrates the difficulties that the courts face. It is an inappropriate forum for attempting to assess and meet the holistic needs of the parties.130 The courts are arguably similarly poorly placed to utilise utilitarian arguments. Consider, for example, Lord Bingham’s suggestion that at least part of the justification for the McFarlane decision was a concern for the effects that any award for maintenance costs would have on the NHS.131 The problem with this is that such a calculation is made on the basis of minimal evidence and fails to recognise that NHS funds could, if necessary, be increased by Government, which would have the effect – through taxation – of spreading the loss across the whole of the community.132 To determine a utilitarian calculation in these circumstances is a complex matter that requires more evidence and consideration than is possible in the context of a court case. The implication of these arguments is that, when looking to control liability, the judges would be advised to rely on desert-based arguments of distributive justice. They are ill equipped to venture into the territory of welfare and utility, as is evidenced by the mess left by the wrongful pregnancy cases. Although the award of a conventional sum circumvents that mess, the law in this area is, I submit, far from settled. Before drawing this article to a close, I will briefly consider the implications of Rees for future wrongful pregnancy and wrongful birth case law. 129 Lord Steyn referred to the award as ‘a backdoor evasion of the legal policy enunciated in McFarlane’: Rees v. Darlington Memorial Hospital NHS Trust [2003] 3 W.L.R. 1091, 1108 at [46]. 130 See Hoyano, n 1 above, p.905, relying on Carnwath J’s paper ‘The Liability of Public Authorities in Tort – Corrective and Distributive Justice’, presented at the British Institute of International and Comparative 42 Law (2001). 131 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, at 1096; [2003] UKHL 52, at [6]. See also: Jones, n 39 above, p.19. 132 This may be seen as akin to a government-sponsored insurance. Distributing the Burden of a Blessing IV. THE LEGACY OF REES The McFarlane decision destabilised wrongful pregnancy and wrongful birth litigation. The Rees decision is no less controversial and is unlikely to end the need to litigate these cases in court. The award of a conventional sum is now available in all cases where the child is healthy, but given the minority’s criticism, especially Lord Steyn’s vehement assertion that ‘the majority have strayed into forbidden territory’,133 it is possible that the issue of damages for the birth of a healthy child will be, at some point, again brought before the House. It certainly reopens the case of a disabled child. Lords Bingham, Nicholls and Scott argued that the award of a conventional sum would cover such a case,134 but Lord Millett’s judgment was unclear on the issue. Since the point is obiter to the decision their Lordships’ arguments cannot be determinative and the Court of Appeal remains free to follow Parkinson. However, the status of Parkinson is uncertain and should it be relied on the defendants have good grounds for appeal thus encouraging further litigation. The Rees decision also opens up the question of whether those cases in which the purpose of the medical intervention (sterilisation or abortion) was specifically intended to avoid the birth of a disabled child should be decided differently.135 Mason argues that, in wrongful birth cases, the pregnancy was wanted and thus ‘it is at least arguable that an action for personal injury cannot survive’.136 Because of this the only loss, and hence the extent of the doctor’s duty to avoid, is economic. Thus, proximity is indisputable and the wrongful birth claim may have stronger foundations than the standard wrongful pregnancy claim. This, of course, still leaves the wrongful pregnancy claims where the sterilisation was sought specifically to avoid the birth of a disabled child.137 It cannot be argued in these cases that proximity is any greater than in any other wrongful pregnancy case. They are also complicated by Lord Millett’s argument that the law has no business looking into the parent’s motivation for sterilisation. This is especially so given his preceding point that no damages could be awarded where a healthy child was born if the reason for seeking sterilisation was specifically to avoid having a disabled child. It should be noted, however, that Lord Scott drew no distinction between wrongful pregnancy and wrongful birth but focused only on the parent’s reason for seeking medical intervention.138 V. CONCLUSION The McFarlane decision has proved to be unpopular with the lower courts, which have latched on to the principle of distributive justice as a device for allowing recovery where the child or parent, is disabled. Although distributive justice underlies tort (or delict) as a whole, its primary relevance is in the political acceptance of corrective justice as a tool for distributing outcome responsibility. When the courts start to use the principle as a means to limit that distribution they begin to encroach on the Government’s territory. While a certain amount of overlap may be inevitable 133 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1108 at [46]. 134 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1097 at [9], 1099 at [18], 1135 at [145]. 135 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1135 at [145] per Lord Scott. 136 Mason, n 6 above, p.50. 137 McFarlane v. Tayside Health Board [2000] 2 A.C. 59, 110. 138 Rees v. Darlington Memorial Hospital NHS Trust [2003] UKHL 52, [2003] 3 W.LR. 1091, 1135 at [145]. 43 Journal of Obligation and Remedies February 2004 , given the way the common law functions, judicial explorations in this area should be well reasoned, based on available evidence, and only ventured when it is reasonably clear that the court’s path is compatible with Government policy. Furthermore, to maintain coherence and consistency, the courts should restrict any use of distributive justice principles to desert, which is also the basis for corrective justice. In McFarlane, and some of the subsequent judgments, distributive justice appears to have been used as a mantra, without any consistent or clear explication of the conception relied on. Distributive justice may yield markedly different outcomes dependent on the basis of the distribution and the effect of these differences may be exacerbated where, as in Hale L.J.’s judgment in the Court of Appeal hearing of Rees, the choice of relevant factors to consider is biased in favour of one party and a particular outcome.139 The issue is also clouded when a hypothetical device, such as the traveller on the Underground, is used as a general measure of justice. Although this may represent an appeal to sensus communis rather than a disingenuous cover of judicial intuition,140 it is still likely to lead to a mixed conception, which obfuscates rather than clarifies and makes it difficult for the lower courts to follow. As Cane suggests: ‘If the increasingly popular notion of “distributive justice” is to earn its keep, it must force judges beyond the mantra of treating like cases alike to thinking hard about the criteria of likeness… Stumbling from one set of facts to the next is, as Rees shows, a formula for confusion and instability in the law’.141 Although the appeal to distributive justice was understandable in White, given the unpopularity of the Court of Appeal’s decision to award damages to the police when none were available to the victims’ relatives, wrongful pregnancy law had been unchanged for 15 years prior to the McFarlane judgment. Had parliament wanted to, it had plenty of opportunity to legislate. The House may, of course have been influenced by a concern for rising negligence costs burdening the NHS. 142 McFarlane was played out before the backdrop of a ‘medical negligence “crisis”’ and a persisting rise in claims and costs had been noted.143 This may explain at least part of the motivation for denying recovery for the maintenance costs and the different mechanism for providing health care in Australia may support a different outcome in that jurisdiction. The judgment in favour of 139 See Hoyano, n 1 above, pp.900-901. 140 Gadamer defines, ‘sensus communis … [as] the sense that founds community’. He explains its practical value as: ‘It is a kind of genius for … adapting general principles to reality through which justice is realised’: H-G. Gadamer, Truth and Method, 2nd ed, (London 1975), 21, 25. The idea of sensus communis represents one possible interpretation of the concept of legal policy distinguishing it from social policy because it reflects those policies that are sufficiently stable and long lasting to become part of the fabric of the community. 141 Cane, n 128 above, p.191. 142 See above. V. Harpwood, ‘The Manipulation of Medical Practice’ in M. Freeman, A. Lewis, (eds.), Law and Medicine: Current Legal Issues Volume 3 (Oxford 2000), 47, 48; L. Mulcahy, ‘Threatening Behaviour? The Challenge Posed by Medical Negligence Claims’ in M. Freeman, A. Lewis, (eds) Law and Medicine: Current Legal 44 Issues Volume 3 (Oxford 2000), 81, 83. Mulcahy argued that her research suggests the threat was exaggerated. However, in 2001, the National Audit Office (NAO) reported a seven-fold increase in costs since 1995-1996: NAO, Handling Clinical Negligence Claims in England (London 2001), 1 at: http://www.nao.gov.uk/publications/nao_reports/0001/0001403.pdf (last visited 28 May 2004). In 1998, the Health Secretary, Frank Dobson commented on the cost to the NHS of negligence litigation, suggesting that: ‘the best place for a lawyer is on the operating table’: Department of Health Press Release, 29th April 1998. See also: Lord Irvine of Lairg ‘The patient, their doctor, their lawyers and the judge: rights and duties’ The Long Fox lecture 1998 at http://www.dca.gov.uk/speeches/1998/longfox.htm (last visited 28 May 2004). 143 Louise Dodson, David Wroe ‘Howard urges States to outlaw child payouts’ The Age, 19 July 2003 at: http://www.theage.com.au/articles/2003/07/18/105803 5201693.html (last visited 28 May 2004). Distributing the Burden of a Blessing recovery, however, provoked the Australian Prime Minister, John Howard, to urge States to legislate against such liability and Queensland, the State that originated the case, has indicated an intention to do so.144 One major problem with the use of distributive justice is that it will inevitably invite criticism because of a lack of consensus over an appropriate mechanism or outcome for determining a fair allocation of, in this case, outcome responsibility. By failing to explicate and justify a coherent and consistent approach, the courts left the law in a mess following the Court of Appeal hearing of Rees. Given the quagmire that the judges have created, it would be helpful for the Law Commission to review the area and recommend a more evidence-based law.145 In the absence of such a review, however, their Lordships in Rees, since it was too soon to overrule McFarlane, were left with two choices: they could continue with the arbitrary discrimination in favour of allowing claimants to recover for the additional costs attributable to the disability; or they could follow Lord Millett’s lead and recognise the infringement of autonomy caused by the doctor’s negligence. The majority chose the latter approach, which, I have argued, is justifiable. This solution is bold and risks pleasing no one. It also, unfortunately, reopens the question of recovery where the child is disabled, whether in a wrongful pregnancy or a wrongful birth case. Despite this, it is perhaps the best compromise that could be achieved in the circumstances. For the sake of clarity, consistency and coherence, this solution should be applied across the board at least until the Law Commission has reported. 144 See the suggestions of Lords Steyn and Hope in Rees v. Darlington Memorial Hospital NHS Trust [2003] 3 W.L.R. 1091, 1108 at [46], 1116 at [77]. 45 Journal of Obligation and Remedies February 2004 Rock, Restitution and Disgorgement Ralph Cunnington* Experience Hendrix LLC v PPX Enterprises Inc., Edward Chalpin Introduction and Facts In the landmark case of Attorney General v Blake1 the House of Lords awarded gain-based damages in response to a breach of contract for the first time. Their Lordships refused, however, to prescribe any fixed rules as to the availability of these damages, commenting that such rules are best ‘hammered out on the anvil of concrete cases’.2 This anvil was struck by the Court of Appeal in Experience Hendrix LLC v PPX Enterprises Inc, Edward Chalpin.3 The decision was important for two reasons. First, the Court explicitly acknowledged the availability of two alternative measures of gain-based damages: the Blake measure and the Wrotham Park measure. Second, the judgments made some progress with the task of expounding principled criteria for the availability of gain-based damages. These two aspects of the judgments will be considered in the present comment. The facts of the case were as follows. An action was brought by the estate of Jimi Hendrix, the rock legend of the 1960s who died in 1970 from a drug overdose. The respondents, PPX Enterprises Inc. were Jimi Hendrix’s former recording company. In 1967 PPX brought proceedings against Jimi Hendrix for alleged breaches of a recording contract that required Hendrix to record exclusively for PPX. These proceedings were eventually settled in 1973, three years after Hendrix’s death, and the contract of settlement was incorporated into an order of the court. Since 1973, however, PPX had exploited various master recordings in breach of the settlement agreement. Experience Hendrix brought an action for breach of the settlement agreement. In the High Court,4 Buckley J granted an injunction to restrain PPX from future unauthorised use of the master recordings. However, the claim for damages in respect of the past breaches failed. Counsel for Experience Hendrix accepted that, ‘it would be impossible to assess damages for those breaches on a traditional basis’, and argued that damages should instead be assessed on either ‘the * Lecturer in Law, University of Birmingham. 1 [2001] AC 268. 2 Ibid at 291 per Lord Steyn. 46 3 4 [2003] EWCA Civ 323. [2002] EWHC 1353. Rock, Restitution and Disgorgement Wrotham Park Estate basis’ or by reference to the entire profit made by PPX.5 Buckley J declined to assess damages on either basis and Experience Hendrix appealed against this decision. The appeal was allowed and damages were awarded on the Wrotham Park basis. Mance LJ expressed the view that, ‘any reasonable observer of the situation would conclude that, as a matter of practical justice, PPX should make (at the least) reasonable payment for its use of masters in breach of the settlement agreement’.6 However, their Lordships refused to order a full account of the profits made by PPX – the Blake measure. Mance LJ held that the facts of Hendrix were not sufficiently exceptional to justify such an order.7 The judgments of the Court of Appeal in Hendrix are of great interest because they attempt to clarify and develop the law concerning the availability of gain-based damages for breach of contract. Certainty in this area of the law is essential in light of the impact that the law has on commercial transactions. The focus of the present comment will be on what was held in regard to the measure and availability of gain-based damages for breach of contract. It will be argued that, although significant progress was made on distinguishing the two measures of gain-based damages, there still remains considerable uncertainty as to when each measure of damages will be available. The Measure of Gain-Based Damages In Hendrix the Court of Appeal was of the view that there are essentially two different types of gain-based damages, measured on two different bases. Such a distinction had already been drawn by Morritt VC two years earlier in the case of Esso Petroleum v Niad.8 He described Esso’s claims as follows: ‘(1) Is Esso entitled to an account of profits as a remedy for the breaches of contract by Niad and (2) Is Esso entitled to a restitutionary remedy requiring Niad to pay to Esso the amount by which the actual prices charged to customers exceeded the recommended prices.’9 In Hendrix, the former was referred to as the Blake measure and the latter was referred to as the Wrotham Park measure. The Blake Measure Mance LJ confirmed that in Blake the Crown’s claim was ‘for all the profits of Blake’s book which the publisher had not yet paid him’.10 Commentators have drawn a distinction between gain-based awards that require a defendant to ‘give up’ a gain and gain-based awards that require a defendant to ‘give back’ a gain.11 The measure of damages awarded in Blake was of the former category. Blake was required to give a full account of his gross profit without any allowance being made for the time, effort and skill which he put into writing the book.12 5 6 7 Ibid at [49]. [2003] EWCA Civ 323 at [42]. Ibid at [37] and [44]. 8 [2001] EWHC Ch 458. 9 Ibid at [58]. 10 [2003] EWCA Civ 323 at [24] per Mance LJ, citing Lord Nicholls in Blake [2001] AC 268 at 284. 11 See particularly J. Edelman, Gain-Based Damages (Oxford: Hart, 2002) chap 3. Professor Birks draws attention to the fact that the underlying Latin ‘restituere/restitution’ indicates that the word ‘restitutionary’ can include both ‘give up’ and ‘give back’: P. Birks, ‘Equity in the Modern Law’ (1996) 26 UWALR 1 at 28. 12 For a detailed discussion of the Blake award see, E. McKendrick, ‘Breach of Contract, Restitution for Wrongs, and Punishment’ in A. Burrows and E. Peel (eds), Commercial Remedies (Oxford: OUP, 2003) at 112-114. 47 Journal of Obligation and Remedies February 2004 Blake was not compelled to ‘give back’ the profits to the Crown, he was compelled to ‘give up’ or disgorge the profits. It was unnecessary for the Crown to show that the profits received by Blake had been derived directly from the Crown as a result of his breach of contract. Indeed, the Attorney General would still have been entitled to claim an account of profits even if Blake had been able to demonstrate that all of his profits had been generated by his own work and skill.13 In the words of Dr Edelman: ‘Whether a transfer of value occurs or not is irrelevant.’14 The Blake measure is a blunt tool which requires the defendant to give up all of the profits he has made from the breach. This was affirmed by Mance LJ in Hendrix, who said that to apply the Blake measure would be to ‘order a full account of all profits which have been made or may be made by PPX by its breaches.’15 The Blake measure of damages is calculated by reference to the actual profit accruing to the defendant from the wrong. Whether the profits are derived from the claimant or not is irrelevant. There need be no transfer of value and there need be no loss sustained by the claimant. The Wrotham Park Measure The measure of damages applied by the House of L o rds in Blake was ve ry different to the measure applied in the cases relied upon by the Crown. The primary authority for the Crown was Wrotham Pa rk E s t ate Ltd v Pa rkside Homes Ltd.16 The defendant, Parkside Homes, erected homes on their land in breach of covenant. The court had jurisdiction to grant a mandatory injunction against the defendant. However, the injunction was refused because, in Brightman J’s words, ‘it would be an unpardonable waste of much needed houses to direct that they be pulled down.’17 The court therefore exercised it’s discretion to award damages in lieu of an injunction under Lord Cairns’ Act. Brightman J held that the damages should be assessed at a value which would provide a ‘just substitute for a mandatory injunction.’ He said that this would be, ‘such sum as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant’.18 On the facts of Wrotham Pa rk this was estimated to be £2,500, equal to five per cent of Parkside’s anticipated profit. It is clear that the damages awarded in Wrotham Park were not compensatory in the ordinary sense because the value of the Wrotham Park Estate was, ‘not diminished by one farthing.’19 Nor were they an account of profits. Lord Nicholls has suggested, extra-judicially, that the Wrotham Park case is an example of partial disgorgement of profits. His comments at the Oxford-Norton Rose colloquium are recorded as follows: Once one had crossed the threshold for being able to recover an account of profits for breach of contract, rather than compensatory damages or specific relief, Lord Nicholls thought that the measure of recovery could extend from expense saved through to stripping a proportion of the profits made through to stripping all the profits made from the breach. The Wrotham Park Estate case (where 5 per cent of the profits had been stripped) was therefore based on the same principles as A-G v Blake (where all the profits had been stripped).20 13 For examples of this see Boardman v Phipps [1967] 2 AC 46; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134. 17 Ibid at 811. 18 Ibid at 815. 14 J. Edelman, n 11 above, at 72. 15 [2003] EWCA Civ 323 at [44]. 16 [1974] 1 WLR 798. 19 Ibid at 812 per Brightman J. 20 A. Burrows and E. Peel (eds), Commercial Remedies (Oxford: OUP, 2003) at 129. 48 Rock, Restitution and Disgorgement These comments have been used to support the thesis that gain-based damages for breach of contract are awarded, ‘on a “sliding scale” extending from various levels of partial disgorgement (hypothetical release damages) to total disgorgement (account of profits).’21 It is respectfully submitted that there is no such sliding scale. Lord Nicholls was mistaken in his comments because the damages awarded in Wrotham Park were calculated by reference to Parkside’s anticipated profit,22 not by reference to Parkside’s actual profit. The Wrotham Park damages were not a partial account of profits. They had nothing to do with Parkside’s actual profits. They were calculated by reference to, ‘such sum as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant’.23 Brightman J held such a sum was roughly equivalent to five per cent of their anticipated profit. The Blake measure of damages is a real assessment of the actual profits received by the defendant as a consequence of his breach. The Wrotham Park measure is a judicial assessment of the objective value received by the defendant as a consequence of his breach. Dr Edelman has described the Wrotham Park measure of damages as, ‘a monetary award which reverses a transfer of value. It is an award which gives back value transferred from a claimant to a defendant as a result of a defendant’s wrong and is almost always measured by the objective gain received by the defendant.’24 This understanding of the Wrotham Park measure of damages is affirmed by the decision of the Court of Appeal in Hendrix. Mance LJ said that, if the measure was to be applied to the facts of Hendrix, the court would award damages equivalent to what would be a ‘reasonable payment for the use of masters in breach of the settlement agreement’.25 This is a judicially determined value placed on the objective benefit transferred from Experience Hendrix to PPX. It is not tied to the actual profit made by the defendant. This was confirmed by Mance LJ who said: ‘In such a context it is natural to pay regard to any profit made by the wrongdoer (although a wrongdoer surely cannot always rely on avoiding having to make reasonable recompense by showing that despite his wrong he failed, perhaps simply due to his own incompetence, to make any profit).’26 Thus the Wrotham Park measure of damages is different to the Blake measure; it is a judicially assessed measure that can exceed the Blake measure where the defendant, by his own incompetence, has failed to make any profit. The next important issue to address is the juridical basis of the Wrotham Park measure of damages. Were they restitutionary, i.e. gain-based, or were they compensatory? It has already been noted that the damages were not compensatory in the ordinary sense. However, in his dissenting speech in Blake Lord Hobhouse described Wrotham Park as a case decided on compensatory principles – the claimant’s loss being, ‘the sum which he could have extracted from the defendant as the price of his consent to the development’.27 In Hendrix, Mance LJ noted Lord Hobhouse’s comments and said: ‘Whether the adoption of a standard measure of damages represents a departure from a compensatory approach depends upon what one understands by compensation and whether the term is only apt in circumstances where an injured party’s financial position, viewed subjectively, 21 D. Campbell and P Wylie, ‘Ain’t No Telling (Which Circumstances are Exceptional)’ (2003) 62 Cambridge Law Journal 605 at 608; M. Graham, ‘Restitutionary Damages: The Anvil Struck’ (2004) 120 Law Quarterly Review 26 at 28. The term “sliding scale” was originally used by Professor Burrows in comments on the Restitution Discussion Group email forum: [email protected]. 22 See Professor Hedley’s comments on the Restitution Discussion Group email forum. 23 [1974] 1 WLR 798 at 815 24 J. Edelman, n 11 above, at 66. 25 [2003] EWCA Civ 323 at [42]. 26 Ibid at [26]. 27 [2001] AC 268 at 298. 49 Journal of Obligation and Remedies February 2004 is being precisely restored.’28 P-W Lee has argued that this statement in Hendrix supports the view that the damages awarded in Wrotham Park were compensatory damages for a lost opportunity to bargain.29 It is respectfully submitted that such an analysis of Wrotham Park is fallacious. The ‘Damages for Lost Opportunity to Bargain’ thesis was originally articulated by Sharpe and Waddams in their seminal 1982 article of the same name.30 They contended that, in circumstances where the defendant has profited from his violation of the claimant’s property right, damages can be awarded based upon the defendant’s gain to compensate the claimant for his lost opportunity to bargain. A number of commentators have rightly rejected this approach as being fictitious.31 The main objection to the approach is that gain-based damages have been awarded in cases where either: (a) the claimant would never have agreed to release the defendant from his obligations; or (b) there never had been an opportunity to bargain release from the defendant’s obligations. Indeed, both these objections arise on the facts of Wrotham Park itself. Brightman J made it clear that the claimants ‘rightly conscious of their obligations towards existing residents’, would clearly not have granted any relaxation of the restrictive covenant.32 Furthermore, there was never an opportunity to bargain release with the second defendants who were the purchasers of the properties from Parkside Homes. They did not purchase the properties until after the building work was complete. By this time the covenant was unenforceable because a mandatory injunction would, in the words of Brightman J, constitute ‘an unpardonable waste of much needed houses’.33 Therefore, there was no historical point at which the claimant would have been able to enforce the covenant against the second defendants. The damages awarded against the second defendants cannot be considered to be compensation for a lost opportunity to bargain since no such opportunity ever existed with the second defendants.34 Fortunately it seems that, contrary to P-W Lee’s assertions, the Court of Appeal in Hendrix did not adopt the Lost Opportunity to Bargain theory to explain the Wrotham Park measure of damages. Peter Gibson LJ referred to the theory as wholly fictional in the context of cases where the claimant would never have agreed to release the defendant from his obligations.35 Mance LJ also noted the artificiality of the approach,36 and described the award as ‘the value which the court puts on the right infringed’.37 This value is not compensatory and it is not based on the actual profit made by the defendant. It is a judicially determined assessment of the objective value received by the defendant as a consequence of his breach - it is restitutionary. 28 [2003] EWCA Civ 323 at [26]. 29 P-W. Lee, ‘Responses to a Breach of Contract’ [2003] LMCLQ 301, at 302. See also M. Graham, ‘Restitutionary Damages: The Anvil Struck’ (2004) 120 Law Quarterly Review 26 at 27-28. 30 R. Sharpe and S. Waddams ‘Damages for Lost Opportunity to Bargain’ (1982) 2 OJLS 290. 31 P. Birks, ‘Profits of Breach of Contract’ (1993) 109 Law Quarterly Review 518; J. Edelman, ‘The Compensation Straight-Jacket and the Lost Opportunity to Bargain (1982) 2 OJLS 290; A. Burrows, The Law of Restitution (London: 50 Butterworths, 2003) at 477. 32 [1974] 1 WLR 789 at 815. Cited by Peter Gibson LJ in Hendrix [2003] EWCA Civ 323 at [57]. 33 Ibid at 811. 34 For a more detailed discussion of this point see: R. Cunnington, ‘Equitable Damages: A Model for Restitutionary Damages’ (2001) 3 Journal of Contract Law 212, at 225-228. 35 [2003] EWCA Civ 323 at [57]. 36 Ibid at [45]. 37 Ibid. Rock, Restitution and Disgorgement The Availability of Gain-Based Damages Thus the Court of Appeal clearly distinguished between the Blake measure of damages and the Wrotham Park measure. The Court also made some progress on articulating the criteria that must be applied when determining whether either measure of damages is available. Unfortunately, their Lordships’ exposition of this criteria lacked precision and clarity and as a consequence uncertainty remains. The Blake measure In Hendrix Mance LJ agreed with Lord Nicholls38 that the Blake measure of damages should only be exceptionally available. It must first be shown that compensatory damages are an inadequate remedy. Mance LJ held that this requirement was met on the facts of Hendrix, ‘because of the practical impossibility in each case of demonstrating the effect of a defendant’s undoubted breaches on the appellant’s general programme of promoting their product.’39 Peter Gibson LJ agreed, stating that the claimant’s difficulty in establishing financial loss was crucial to making an award of gain-based damages.40 While this is undoubtedly correct, a note of caution should be added: the claimant’s inability to establish loss is not in itself decisive; it is merely persuasive evidence that the usual contractual remedies would be inadequate to protect the performance interest of the contract. The claimant should also be able to demonstrate that he had a legitimate interest in preventing the defendant’s profit making activity. This is at the heart of what it means to say that the Blake measure will only be exceptionally available. The legitimate interest criterion was originally proposed by Lord Nicholls in Blake41 and has been the object of some criticism due its inherent uncertainty.42 Nevertheless the test was endorsed by both Mance LJ43 and Peter Gibson LJ44 in Hendrix. Mance LJ considered that a legitimate interest had been evidenced by the availability of an injunction to prevent PPX from breaching the settlement agreement again in the future.45 However, he distinguished the facts of Hendrix from those in Blake on the following grounds: the facts of Hendrix were not as special or sensitive as national security; the notoriety of the breach accounted for Blake’s royalty earning capacity; there was no direct analogy between PPX’s position and that of a fiduciary.46 These points of distinction all relate to the need for deterrence. It may well be that the ‘legitimate interest’ criterion merely refers to the special need for deterrence which the Court of Appeal held was not evidenced on the facts of Hendrix. Mance LJ added two further criteria to those already stated. These criteria were taken from the judgment of Morritt VC in Niad47: (1) the breach must go to the root of the contract or ‘give lie to its integrity’; (2) the defendant must have profited directly from the breach of contract.48 The first of these criteria clearly relates to the ‘legitimate interest’ criterion - the claimant only has a 38 [2001] AC 268 at 285. 39 [2003] EWCA Civ 323 at [38]. 43 [2003] EWCA Civ 323 at [36]. 44 Ibid at [54] and [58]. 40 Ibid at [58]. 41 [2001] AC 268 at 285. 42 A. Phang and P-W. Lee, ‘Rationalising Restitutionary Damages in Contract Law – An Ellusive or Illusory Quest?’ (2001) 17 Journal of Contract Law 240, 251261; R. Cunnington, n 34 above, at 214-217. 45 Ibid at [36]. 46 Ibid at [37]. 47 [2001] EWHC Ch 458 at [63]. 48 [2003] EWCA Civ 323 at [38]. 51 Journal of Obligation and Remedies February 2004 legitimate interest in preventing the profit-making breach if the breach goes to the root of the contract. The second criterion is a necessary limitation to ensure that the profits stripped are causally linked to the breach. It is a test resembling the test for remoteness of compensatory damages for breach of contract.49 Mance LJ declared that Experience Hendrix’s claim failed on both these criteria. With respect this conclusion is questionable.50 First, it is surely arguable that PPX’s breaches did go to the root of the settlement agreement. The purpose of the agreement was to prevent PPX exploiting Hendrix’s songs without fair compensation. This purpose was achieved by providing that only some of the songs (the Schedule A masters) could be exploited. PPX violated the very basis of this agreement by licensing many of the songs that they were not entitled to exploit. Thus it appears that Experience Hendrix did have a legitimate interest in preventing PPX’s profit-making breach. The breach went to the very root of the contract and ‘gave lie to its integrity’. Second, it is difficult to understand why Mance LJ concluded that the profits received by PPX were not derived directly from the breach of contract. The use of the masters recordings were the breach of the settlement agreement of 1973. Therefore, the profits derived from the use of the masters recordings were directly derived from the breach of contract. In summary, the Court of Appeal espoused the following criteria for the availability of damages to disgorge the defendant’s profit: (1) compensatory damages must be inadequate to protect the performance interest of the contract; (2) the claimant must have a legitimate interest in preventing the defendant’s profit making activity (this would be so if the breach went to the root of the contract or gave lie to its integrity); (3) the profits must be directly derived from the breach. It is difficult to understand why the Court of Appeal held that these criteria were not met on the facts of Hendrix. The only points of distinction between Hendrix and Blake were ones of historical particularity, such as the notoriety of Blake’s breach. There was no obvious point of substance that distinguished Hendrix from Blake. Perhaps the Court determined that, in light of Jimi Hendrix’s own breach of his 1965 contract with PPX, the need for deterrence was not so great as to justify a full disgorgement of PPX’s profit. If so, the crucial criterion for the availability of such damages is the need to deter the defendant’s profit-making breach. Alternatively, the Court of Appeal’s reluctance to apply the Blake measure of damages might have been due to the commercial context of the breach. This was alluded to by both Mance LJ52 and Peter Gibson LJ53 in their judgments. Indeed, in a recent decision of an arbitration tribunal, chaired by Sir Christopher Staughton, a claim for full disgorgement of the respondents’ profits was rejected in blunt language because: ‘It is by no means uncommon for commercial contracts to be broken deliberately because a more profitable opportunity has arisen.’54 So it may well be that the Court of Appeal refused to apply the Blake measure of damages in Hendrix because the breach took place in a commercial context. If this is so then the decision is very difficult to reconcile with Niad. Ultimately it is unclear why the Court of Appeal refused to award the Blake measure of 49 Hadley v Baxendale (1854) 9 Exch 341. See the comments of McKendrick on remoteness in re l ation to the Blake award: E. McKendrick, n 12 above, at 116-117. 50 For a more detailed criticism see: J. Edelman, ‘Attorney-General v Blake Revisited’ [2003] Restitution Law Review 101 at 105. 52 51 D. Campbell and P Wylie, n 21 above, at 621. 52 [2003] EWCA Civ 323 at [44]. 53 Ibid at [55]. 54 AB Corp v CD Co (The ‘Sine Nomine’) [2002] 1 Lloyd’s Rep 805 at 806. Rock, Restitution and Disgorgement damages. What is clear is that this aspect of the Court of Appeal’s decision has left the law in a state of serious uncertainty. The Wrotham Park measure In refusing to award the Blake measure of damages the Court of Appeal did not refuse to award any form of gain-based damages. Instead their Lordships ordered that PPX should pay a sum equivalent to what would be a ‘reasonable payment for the use of [the] masters’ – the Wrotham Park measure of gain-based damages. The reader of the judgments is left somewhat confused as to when such awards will be available because of an apparent paradox in the court’s reasoning. Both Mance and Peter Gibson LJJ affirmed that the Blake award was distinct from the Wrotham Park award. Nevertheless, they endorsed the use of the Blake criteria for assessing the availability of Wrotham Park damages. Indeed Mance LJ said that Lord Nicholls’s useful guide was the appropriate starting point when considering an award of Wrotham Park damages.55 It is difficult to understand why the same criteria should be used if the two awards are distinct. Fortunately some light is shed on this apparent paradox by Mance LJ’s actual application of the test to the Wrotham Park award. His Lordship considered that a legitimate interest had been sufficiently evidenced by the availability of an injunction against the respondents’ future breaches.56 This is illuminating because specific relief, in the form of specific performance or an injunction, is only available when compensatory damages are judged to be inadequate.57 Thus the availability of an injunction is evidence that compensatory damages are inadequate to protect the performance interest of the contract: the first of Lord Nicholls’ criteria in Blake.58 It would therefore appear that the crucial criterion for the availability of Wrotham Park damages is not evidence of a legitimate interest; it is evidence that compensatory damages would be inadequate. This criterion is entirely sensible.59 Whenever compensatory damages are inadequate some alternative remedy is required. The most appropriate alternative is usually either specific p e r formance or an injunction. Howeve r, these remedies are sometimes inappropriate or unavailable. This was the case in Hendrix where the breach was a past breach and therefore a prohibitive injunction would have been of no use. It was also the case in Wrotham Park where the mandatory injunction was refused because of the ‘unpardonable waste of much needed houses’. An injunction will also be refused where third party rights have intervened.60 In such cases compensatory damages are manifestly inadequate and specific relief is unava i l abl e. Some alternative measure of damages is required and that alternative measure is the Wrotham Park measure – an award measured by reference to the judicially determined value of the objective benefit received by the defendant. The Wrotham Park measure of damages is ava i l able whenever compensatory damages are inadequate. In such circumstances, practical justice requires that the defendant makes reasonable payment for the benefit he has received. As Mance LJ observed in relation to the facts of Hendrix: ‘any reasonable observer of the situation would conclude that, as a matter of practical justice, PPX 55 [2003] EWCA Civ 323 at [35]. 58 [2001] AC 268 at 285. 56 Ibid at [36]. 57 Wilson v Northampton and Banbury Junction Rly Co (1874) 9 Ch App 279; Co-Op Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1. 59 See R. Cunnington, n 34 above, at 234-237. 60[2003] EWCA Civ 323 at [35] per Mance LJ. 53 Journal of Obligation and Remedies February 2004 should make (at the least) reasonable payment for its use of masters in breach of the settlement agreement’.61 Conclusion The decision of the Court of Appeal in Hendrix is to be cautiously welcomed as it has done much to clarify the nature of gain-based awards for breach of contract. The Court clearly distinguished between the two measures of gain-based damages: the Blake measure, an award requiring the defendant to disgorge or ‘give up’ the profits that he made by the wrong; and the Wrotham Park measure, an award requiring the defendant to make restitution of or ‘give back’ the judicially determined value of the benefit transferred from the claimant to the defendant as a result of the wrong. With this framework in place it is now possible to start to tackle the harder question of when each measure of damages should be available. Unfortunately, the judgments of the Court of Appeal failed to provide a clear and coherent answer to this second question. While it is clear that the Wrotham Park measure of damages will be available whenever compensatory damages are inadequate and specific relief is unavailable it is much less clear when the Blake measure will be available. Their Lordships failed to provide any coherent explanation of why the Blake measure was refused. It may have been because the case concerned a commercial contract (although this would be difficult to reconcile with the decision in Niad), or it may have been because the appellants failed to demonstrate a particular need for deterrence. Whatever the reason, the law has been left in an uncertain state and we eagerly await the next strike of the anvil. 61 Ibid at [42]. 54 article header 55 Journal of Obligation and Remedies 56 February 2004