Law of Torts: Negligence, Vicarious Liability and Passing Off

A contract is a promise the parties made. A tort is a duty the law imposes on everyone, whether they promised anything or not: do not injure your neighbour, do not damage his property, do not damage his reputation, do not cheat him. For an accountant the most important tort is negligence, since careless advice or careless audit work can cost a client a great deal of money.

But the topic is wider than that. It also covers who is liable for what an employee does, when a person is liable with no fault at all, and the torts that protect business interests, such as deceit and passing off.

This topic covers the meaning and classification of torts, who may sue and be sued, vicarious liability, strict liability under the rule in Rylands v Fletcher, negligence (duty of care, negligent misstatement, breach, damage, causation, remoteness and defences), product liability, the economic torts, and professional negligence.

The nature of a tort

A tort is a civil wrong. It may be described as an offence without criminal consequences. It is an actionable breach of duties towards persons fixed by law, and it gives rise to civil proceedings for damages and other remedies, including an injunction. The same act may be both a crime and a tort, but the remedies differ.

The state prosecutes a crime and the offender may be imprisoned or fined, while an action in tort gives redress to the injured person. The criminal law topic gives the distinction.

In most torts the plaintiff must prove the injury he suffered. In a few, the plaintiff need prove only an infringement of his legal right, and these are actionable per se. Trespass to land is an example.

Classification of torts

November 2017 asked for four categories of tort, and November 2021 asked for four torts that affect economic interests. Section A in November 2016 and November 2020 asked which tort affects personal safety (assault).

Rules common to tort liability (May 2023, 3 marks)

1. The defendant is not liable unless his act caused actual harm, except in torts actionable per se (such as trespass to land) and torts that protect a person’s dignity.
2. Some torts need fault, intentional or negligent, but some are strict liability torts.
3. Liability depends on the duty imposed by the rule on the particular tort.
4. A tort has two elements: breach of a legal duty and the resulting harm or damage.

Capacity in torts

As a general rule, all persons of full age may sue and be sued in tort. This was asked in May 2016, May 2018, November 2020 and May 2023 (usually for five exceptions). Special rules apply to:

1. the Head of State or other sovereigns, who cannot be sued in their private capacity while in office (the examiners also listed the President, Governors, the Senate President and Speakers of legislative houses);
2. judges, who have immunity for acts in their judicial capacity;
3. diplomats, ambassadors and high commissioners (in the examiners’ lists);
4. companies, which sue and are sued in their corporate names and may be vicariously liable;
5. a person of unsound mind, who is not excused from liability for negligence;
6. an infant (under 21 in the syllabus), who is liable for his own tort;
7. a married woman, who is liable as if she were a single woman, while the husband may be sued jointly for her torts during the marriage; and
8. husband and wife, and master and servant, who are presumed vicariously liable for each other’s acts and are not expected to sue each other.

Vicarious liability

The rule

Vicarious liability falls on a person without his own fault. It is liability imposed on him for the acts of another person under his control. The standard case is master and servant. November 2014 asked for an explanation with two examples, and November 2022 tested it again.

The examiners gave two conditions: there is a relationship, such as master and servant, between the wrongdoer and the person held liable, and the wrong was done in the course and within the scope of employment.

Servant or independent contractor?

The syllabus gives tests for a master and servant relationship, as opposed to a master and independent contractor:

1. the master shows the employee how to do his work, whereas an independent contractor is trained in his trade and works without supervision;
2. one person pays the other wages or salary;
3. one person has the power to hire and fire the other;
4. the employee is an integral part of the organisation; and
5. the employee was acting within the scope of his employment.

Course of employment

• The master is not liable for the servant’s tort unless it was committed in the course or scope of his employment. The act must be lawful and incidental to the employment.
• The master may be liable if the act was expressly or impliedly authorised, or if the servant did an authorised duty in a wrongful and unauthorised manner.
• If the servant disobeys instructions, the master may sometimes escape. In Twine v Bean’s Express the master forbade the driver to give lifts. The driver gave one, and a passenger died. The master was not liable.
• Where the servant commits fraud in the course of the master’s business, the master may be liable whether the fraud benefited him or not.
• In November 2014 the examiners held that an employee who made a detour of five kilometres from his route and knocked down a pedestrian was “on a frolic of his own”, so his employer was not liable.
• In May 2017 the examiners held that a firm’s principal was vicariously liable for wrong advice given by the acting manager, because it was given in the course of the firm’s business.

Strict liability: Rylands v Fletcher

Strict liability attaches without fault. The rule is that where a person keeps for his own purpose a thing, and it escapes and causes mischief, he is liable, whether he intended harm or not. To succeed, the plaintiff must establish that:

1. the damage was caused by a thing brought by the defendant onto his land;
2. the use was a non-natural use of the land, that is, something not usually there; and
3. the thing escaped and caused damage.

March/July 2020 asked for strict liability and two elements (4 marks), and November 2016 asked for the meaning and an element.

Negligence

Meaning and elements

Negligence means carelessness or inadvertence. An act is negligent where a person did not take the care needed to avoid the consequences of his act or omission. No bad intention is needed. It is also described as a breach of a legal duty to take care that results in damage to the plaintiff. Three elements must be present, and if the plaintiff fails to prove any one, his action fails:

1. a legal duty to take care owed by the defendant (duty of care);
2. a breach of that duty; and
3. damage to the plaintiff resulting from the breach.

This is asked every few diets: November 2015 (6 marks), May 2019 (4 marks), May 2021 (6 marks), May 2023 (2 + 2 marks), November 2021.

Duty of care

In Donoghue v Stevenson (1932) Lord Atkin said that you must take reasonable care to avoid acts or omissions that you can reasonably foresee would be likely to injure your neighbour. Your neighbour is anyone so closely and directly affected that you ought reasonably to have them in mind when directing your thoughts to the acts or omissions in question. The duty rests on the reasonable foresight of the defendant.

If the damage is so remote that he could not foresee it, he is not liable.

Negligent misstatements

The courts have long imposed a duty of care to avoid careless statements. For a statement causing physical injury, a duty of care has long been settled. For a statement causing financial or economic loss, the old position was no liability without a fiduciary or contractual relationship.

In Hedley Byrne v Heller (1963), the House of Lords held that a negligent misstatement without fraud may give rise to a claim for damages for financial loss suffered by a person who acted on it, even where there is no contract or fiduciary relationship, unless there is an express and effective disclaimer.

There, advertising agents asked their bank about a company’s creditworthiness, the defendants twice gave favourable references, and the company soon went into liquidation. This is the case behind an accountant’s liability for careless advice.

Breach of duty

Once a duty is shown, the plaintiff must show a breach: the defendant did not act as a reasonable man would have acted. The courts consider:

• how likely the conduct was to cause harm, compared with the caution required;
• the seriousness of the injury risked;
• the importance or usefulness of the defendant’s activity; and
• the cost and practicability of precautions.

Damage

The plaintiff must prove that the breach caused the damage and that it is not too remote.

• Causation in fact. The defendant is liable only for damage that is the direct consequence of his tort. It must be possible to say that, but for the breach, the damage would not have occurred.
• Remoteness. A person is liable only for consequences that are not too remote. Consequences are too remote if a reasonable person could not have foreseen them.
• The eggshell principle. A defendant takes his victim as he finds him. A special weakness that made the harm worse does not excuse him.
• Novus actus interveniens. An intervening act that breaks the chain of causation may relieve the defendant.

Defences to negligence

May 2015 asked for two defences (4 marks). The examiners gave:

1. Inevitable accident: the injury could not have been avoided by reasonable care.
2. Volenti non fit injuria: the plaintiff willingly assumed the risk of injury, knowing the consequences.
3. Contributory negligence: the plaintiff contributed to his own injury and could have avoided the accident by acting differently.
4. Novus actus interveniens: an intervening act of the plaintiff or a third party broke the chain.

Product liability

The liability of a producer of goods for sale to the public depends on whether the goods are dangerous in themselves. Privity of contract was long an obstacle, because the injured person often did not buy from the producer.

In Donoghue v Stevenson (1932), B bought a bottle of ginger beer from a retailer and gave it to C. It contained the remains of a snail that could not be seen until most of the drink had been consumed, and C suffered shock and gastro-enteritis.

She sued the manufacturer A. The House of Lords held that a manufacturer who sells products in a form that shows he intends them to reach the ultimate consumer as they left him, with no reasonable possibility of intermediate examination, and who knows that carelessness in preparation will injure the consumer, owes the consumer a duty to take reasonable care.

Torts affecting economic interests

• Deceit. Committed when a person, with fraudulent intention, knowingly makes a false statement that induces another to act on it and causes him economic loss (May 2023, 2 marks).
• Passing off. A false representation made by a person who uses a name similar to that of another business, intended to induce people to buy his goods or services instead (May 2023, 2 marks). In May 2024 Magomago Ltd branded its ceiling fan with a name so close to Biz Ltd’s that buyers would be deceived, and was liable in passing off, with Biz entitled to damages and an injunction.
• Conversion. Dealing with another’s goods in a way that denies his rights. In May 2016 a person who spent money entrusted for a scholarship on his own children’s school fees was also liable for conversion, in addition to being guilty of stealing.
• Detinue. Refusing to return another’s goods when he demands them.

Professional negligence and accountants

An accountant owes his client a duty to take reasonable care in advice, preparation of accounts and audit work, and under Hedley Byrne may owe it to third parties who rely on his statements, unless an effective disclaimer is given. Negligence is therefore “a tort that an accountant must avoid” (May 2019, May 2021).

In May 2016 the examiners treated an accountant’s liability for a careless statement as a negligent misstatement leading to damages.

Defamation

Torts affecting reputation are libel (written) and slander (spoken), together called defamation. In November 2021 a bank manager reported a customer’s unusual transactions to the Economic and Financial Crimes Commission, and the customer sued him for defamation. The Money Laundering Act requires a financial institution to report suspicious transactions, such as an unjustifiable frequency, so a manager who reports in good faith under that duty has a strong defence.

The syllabus does not define defamation, so in an exam say that it is a tort affecting reputation, and apply the statutory duty to report.

Working through the rules

Is the employer liable?

Negligence: the three elements applied

Worked problems

Problem 1: the acting manager

1. The rule. A master is liable for his servant’s tort if it was committed in the course of employment. Disobeying instructions may sometimes excuse the master (Twine).
2. The examiners’ view. The advice was given in the course of the firm’s business, so Kalu is vicariously liable.
3. Note. The difference from Twine is that advising clients is the very work Kazeem was acting to do, though in a wrongful manner. A ban on a task unconnected with the business, as in Twine, may excuse the master.

Problem 2: the leaking chemical drum

1. The rule. Rylands v Fletcher: liability without fault, where a thing kept for the defendant’s own purpose escapes and causes damage, and the use is non-natural.
2. The application. Storing large quantities of chemicals is non-natural, and the escape damaged the crops.
3. Advice. The farmer is liable in strict liability even if he took care.

Problem 3: the accountant’s reference

1. The rule. Hedley Byrne allows a claim for financial loss from a negligent misstatement, even without a contract, unless there is an express and effective disclaimer.
2. The elements. Duty (the accountants knew the lender would rely on their letter), breach (the statement was careless) and damage (the ₦50m loss).
3. Advice. The lender can succeed unless the letter contained an effective disclaimer.

Problem 4: the imitated brand

1. The tort. Passing off: a false representation by using a similar name to induce people to buy its goods.
2. Advice. Biz may sue for damages and an injunction to stop the use of the name.

Questions that have been asked on this topic, and how to answer them

Common mistakes in the exam

• Describing negligence as intentional wrongdoing. It is carelessness, and no bad intention is needed.
• Giving two elements of negligence instead of three.
• Making an employer liable for an employee’s act that is a frolic of his own.
• Saying vicarious liability applies to an independent contractor.
• Forgetting that strict liability needs non-natural use and escape.
• Saying a victim’s weakness reduces the defendant’s liability. Under the eggshell rule it does not.
• Forgetting Hedley Byrne when the loss is purely financial.
• Confusing torts with crimes. A tort has civil remedies.
• Missing out the exceptions to the general rule that all persons of full age may sue and be sued.

Quick revision

• Tort: civil wrong, breach of a legal duty with harm. Per se: trespass to land. Classes: personal safety, property, reputation, economic interests, judicial process.
• Capacity: general rule, with exceptions (Head of State, judges, diplomats, companies, insane, infants, married women, spouses and master and servant).
• Vicarious: master for servant in course of employment (Twine, frolic of his own). Strict: Rylands v Fletcher.
• Negligence: duty, breach, damage. Donoghue v Stevenson. Hedley Byrne for misstatement. Causation, remoteness, eggshell, novus actus. Defences: inevitable accident, volenti, contributory negligence, novus actus.
• Economic torts: deceit, passing off, conversion, detinue.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Section A style: multiple choice

Section B style: written questions

Model answers

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