CASES Liability for References: The House of Lords and Spring v Guardian Assurance Introduction Tom Allen" In Spring v Guardian Assurance,' the House of Lords considered the question of negligence and pure economic loss once again. Until recently, it appeared that the courts were likely to dismiss such claims unless the facts fell within an established category of liability. Yet in Spring, the House of Lords held that an employer owes a former employee a duty to prepare a reference with reasonable care. The decision is important beyond the immediate situation involving employers, as it suggests that there may be scope for extending negligence to other situations involving harm caused by statements made to a third party. More generally, it suggests that the House of Lords is more willing to impse duties of care for pure economic loss than it was in the post-anns v Merton era. Spring also confirms that negligence may be reasserting itself as the area of liability in the common law where judicial creativity is permitted and substantive justice is done. In this, it is not unique. In White v Jones,3 the House of Lords held that a testator's solicitor owes a duty of care to potential beneficiaries and, in Henderson v Merrett Syndicates Ltd,4 it held that Lloyd's agents owed a duty of care to Names. In White v Jones and Spring, in particular, the emphasis on achieving a measure of substantive justice was quite pronounced. But Spring does not merely confirm the trend in these other cases; it also shows that there is no unanimity on the test for the duty of care. White v Jones and Henderson v Merrett Syndicates rely extensively on Hedley Byrne & Co v Heller & Partners Ltd5 and the 'voluntary assumption of responsibility' as the source of the duty of care. Indeed, Lord Goff has gone so far as to say that, in general, there can be no liability in negligence for pure economic loss unless there has been a voluntary assumption of responsibility.'j By contrast, three of the Law Lords in Spring based their speeches on Lord Bridge's test, found in Caparo Industries plc v Dickman.I The facts In Spring, the plaintiff had been an insurance representative for the defendants, Guardian Royal Exchange Assurance, and several associated companies. The *University of Newcastle Upon Tyne. 1 [1994] 3 WLR 354. 2 [1978] AC 728. 3 [1995] 2 WLR 187. 4 [1994] 3 WLR 761. 5 [1964] AC 465 (HL). 6 Spring, supra n 1, at p 367; White v Jones, supra n 3, at p 1%; cf Henderson v Merrett Syndicate, supra n 4, at p 776. 7 [1990]2AC605. @ The Modem Law Review Limited 1995 (MLR 58:4, July). Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF and 238 Main Street, Cambridge, MA 02142, USA. 553
The Modern Law Review [Vol. 58 defendants dismissed him and he subsequently failed to get a position as a representative with other insurance companies. He attributed this to a reference received from the defendants which accused him of fraudulent selling practices. At trial, Judge Lever QC found that the reference was incorrect; the plaintiff was not guilty of fraud, although he was guilty of incompetence.* The accusation of fraud was clearly defamatory, but the plaintiff did not bring an action in libel.g Instead, he sued in malicious falsehood, negligence and breach of contract. Judge Lever found that the defendants were not guilty of malice, and hence there was no liability in malicious falsehood. An action in defamation would have also failed: an employer who gives a character reference is generally entitled to a qualified privilege and, since the trial judge held that there was no malice, the defence would have stood.1o The case eventually reached the higher courts because Judge Lever also found that the defendants prepared the reference carelessly, which left a difficult issue to be resolved: did the defendants owe the plaintiff a duty to prepare the reference carefully, in either negligence or contract? Judge Lever upheld the claim in negligence and dismissed the claim in contract. The Court of Appeal dismissed the claims in both negligence and contract. Glidewell LJ, who delivered the Court s judgment, held that liability for statements made to a third party is a field of its own, in which plaintiffs can claim for pure economic loss only in defamation or malicious falsehood. The House of Lords reversed the Court of Appeal by a 4: 1 majority. Lord Keith, dissenting, took the restrictive view of negligence characteristic of the post-anns v Merton era. He could see no justification for extending negligence into this area. Lords Slynn, Lowry and Woolf held that a duty of care arose under the three-part test set out by Lord Bridge in Cupuro v Dickman,12 because (i) it was foreseeable that the harm would occur, (ii) the parties were in sufficient proximity, and (iii) it was fair, just and reasonable to impose the duty of care. As their analysis dominates the judgment, we begin by examining it in some detail. Lord Goff also found that there was a duty of care in negligence, but he looked to Hedley Byrne and the voluntary assumption of responsibility for the source of the duty of care. This may seem out of place in Spring, since neither the arguments of counsel nor the judgments of the lower courts referred to it. However, it is consistent with the approach taken by the majorities in Henderson v Merrett Syndicates and white v Jones. At the same time, it appears that Lord Goff may be using the test in a much broader sense in Spring than in these other cases. Accordingly, the note examines his speech as well. The Caparo v Dickman analysis It was never really in doubt that there was sufficient foreseeability and proximity to satisfy the first two parts of the Cupuro v Dickman test. However, this does not mean that the duty of care would apply indiscriminately to all situations regarding harm caused by a statement made to a third party. The Law Lords made it clear 8 [1992] IRLR 173. 9 Perhaps because legal aid would not have been available: ibid at p 177. 10 Lewis, Gatley on Libel und Slander (8th ed), at p 193. 11 Noted Weir 119931 CLR 376; Allen (1994) 57 MLR 111. 12 [lw] 2 AC 605. 554 0 The Modern Law Review Limited 1995
July 19951 Spring v Guardian Assurance that they were specifically concerned with references provided by employers and ex-empl~yers. ~ Lord Slynn also expressed his disapproval of Balfour v Att~rney-GeneraZ, ~ where the New Zealand Court of Appeal refused to impose a duty of care on school authorities for internal reports which accused a teacher of homo~exuality. ~ However, it would be difficult to establish sufficient proximity in relationships not involving employment. l6 For example, the plaintiffs social acquaintances would probably not be within the same degree of proximity. Lord Woolf also stated that there would not have been sufficient proximity in South PaciJic Manufacturing Co Ltd v New Zealand Security Consultants & Investigations Ltd, l8 where investigators were sued for statements in reports made to insurers about claims made by the plaintiffs.i9 Foreseeability and proximity therefore remain valuable controls on the extension of liability, even though they were established relatively easily in Spring. The real issue arose over the third criterion of Caparo v Dickman : was it fair, just and reasonable to impose a duty of care on the defendant? In particular, did the possibility of bringing an action in defamation affect the expansion of negligence? As a general rule, the courts are reluctant to impose a duty of care in negligence if an adequate alternative remedy would be available.20 In Spring, the Law Lords found that employees should have a claim against their employers, since an inaccurate reference creates the probability, often amounting to a certainty, of damage to the individual, which in some cases will be serious and may indeed be irreparable. 21 However, defamation does not offer an adequate remedy, because the typical employee would not be able to prove that the employer acted maliciously.22 Employers are already under both common law and statutory duties to take reasonable care for the physical, financial and psychological welfare of employees, and so it is fair, just and reasonable to impose similar duties for reference^.^^ Hence, as between the employer and employee, imposing a duty of care is wholly fair because it would strike a proper balance between the interests of employers and employees.24 From this analysis, it would be incorrect to allow defamation and malicious falsehood to exclude negligence, as the Court of Appeal did. The House of Lords found that there is room to distinguish between defamation and negligence, in that negligence requires a duty of care and proof of actual damage.25 Nevertheless, we 13 supra n 1, at p 386 @er Lord SlYM) and p 394 @er Lord Woolf). 14 [1991] 1 NZLR 519. 15 supra n 1, at p 385 @er Lord Slynn); cf Petch v Commissioners of Customs and Excise, The Times, 4 March 1993 (CA). 16 Lord Woolf noted that, even with employees, the degree of proximity would also depend upon the length of time after employment ends: see supra n 1, at pp 394,391. Here, the length of time between termination and the giving of the reference was fairly short (several months) and so proximity was preserved. 17 supra n 1, at p 386 @er Lord Slynn) and p 394 (per Lord Woolf). 18 119921 2 NZLR 282. 19 supra n 1, at p 398; cf Martine v South East Kent Health Authority, The Times, 8 March 1993 (CA). 20 See eg Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295, at p 316 per Lord Templeman. 21 supra n 1, at p 376 @er Lord Lowry). 22 ibid at p 395 @er Lord Woolf). Furthermore, legal aid is not available for actions in defamation. 23 ibid at p 384 @er Lord SlYM) and p 391 @er Lord Woolf). 24 ibid at p 395 @er Lord Woolf). 25 ibid at pp 384, 386 @er Lord Slynn) and pp 398-399 @er Lord Woolf); see also Weir, supra n 11. Cf Bell-Booth Group Ltd v Attorney-General 119891 3 NZLR 148, at p 156 per Cooke P. 0 The Modem Law Review Limited 1995 555
The Modem Law Review [Vol. 58 might still ask whether, and how, the public policy underlying the defence of qualified privilege should affect the imposition of a duty of care. One of the clearest descriptions of the policy is found in Whiteley v Adam, where Erle CJ justified the qualified privilege upon the principle that it is to the general interest of society that correct information should be obtained as to the character of persons in whom others have an interest. If every word which is uttered to the discredit of another is to be made the ground of an action, cautious persons will take care that all their words are words of praise only and will cease to obey the dictates of truth. 26 As mentioned in an earlier note, a decrease in the flow of information regarding job applicants could lead to an inefficient allocation of human resources, lower productivity and perhaps an increase in social security e~penditure. ~ While it is important to avoid these effects, there are at least two reasons why we cannot assume that they would follow from the imposition of a duty of care. Firstly, it is almost impossible to predict how imposing a duty of care would affect the flow of information. To begin with, the issue is not the same as it was in Whiteley v Adam where Erle CJ was concerned with the deterrent effect of strict liability. In Spring, the concern is with liability in negligence and the real question is the marginal effect of adding a duty of care to the duty of honesty already in existence. In theory, a well-informed, rational referee (assuming one exists) would attempt to weigh the benefits of providing references against the marginal costs of liability in negligence. Estimating either the benefits or the costs would be problematic. Referees are not normally paid for giving references, but if they are indeed rational there must be some sort of benefit from giving them.28 The referee would weigh these benefits against the marginal increase in cost associated with liability in negligence. While it seems likely that the cost of liability would be higher, it would depend on factors such as the likelihood that an employee would discover the referee s carelessness and the prospective employer s reasons for not appointing him or her, and ultimately succeed in proving the claim in court. Furthermore, as Lord Woolf noted, many employers already take considerable care in maintaining employee records and preparing reference~,~~ and so the imposition of the duty would not necessarily increase costs significantly. As a result, it seems doubtful that the fears expressed in Whiteley v Adam would necessarily apply when a duty of care is at stake. Furthermore, the analysis in Spring was even more difficult because the defendants Were members of the Life Assurance and Unit Trust Regulatory Organisation (LAUTRO). LAUTRO s Code of Conduct required them to provide a full and frank reference for any employee or former employee who applied for a position with another insurance company. By itself, the LAUTRO Code did not create nor justify the imposition of a duty of care30; nevertheless, it would affect an employer s response to requests for references from third parties. In particular, an employer could not refuse to supply references; nor could it provide bland, uninformative references. Again, this answers the concerns expressed in Whiteley v Adam. Ultimately, Lord Lowry is 26 (1863) 15 CB (NS) 392, at p 418. 27 supra n 11, at p 113. 28 If the referee did give the reference to earn a profit, the qualified privilege would probably not be available: Macintosh v Dun [1908] AC 390; London Association for Protection of Trade v Greenlands [1916] 2 AC 15. 29 supra n 1, at p 400 @er Lord Woolf). 30 ibid at p 377 (per Lord Lowry), p 389 @er Lord Slynn) and p 400 @er Lord Woolf). 556 0 The Modem Law Review Limited 1995
July 19951 Spring v Guardian Assurance correct in stating that the threat to the flow of information was merely a spectre conjured up by the defendants to frighten your Lordships into ~ubmission. ~~ Secondly, it is not at all clear that reducing the quantity of references necessarily harms the public interest. A duty of care could raise the quality of information provided in the references, even if the number of references decreases. The public interest might be served by improving the quality of information rather than the quantity. For example, the Data Protection Act 1984 shows far more concern with the accuracy of data and the development of good data management practice than it does with maximising the flow of data between data users. Thus, it appears that we can conclude only that imposing a duty of care might restrict the flow of information and this might affect the public interest. It would be quite harsh to deny a just claim on the basis of an unproved assertion that it would be contrary to the public interest. Of course, there may be situations in which other aspects of public policy operate. To give one example, the internal communications of the police could cause serious damage to an individual. However, Hill v Chief Constable of West Y~rkshire~~ suggests that public policy would be against liability. Another important example concerns human rights. Their Lordships stated that negligence would not apply to the communication of a true statement, even if the manner in which it was communicated caused unnecessary harm to the plaintiff.33 The defence of justification would defeat claims in defamation and it seems that the same public policy would also exclude liability in negligen~e.~~ Hedley Byrne and the voluntary assumption of responsibility As stated above, Lord Goff did not base his analysis on Caparo v Dickman. Instead, he turned to Hedley Byrne and found the source of the duty of care in an assumption of responsibility by [the defendants] to the plaintiff in respect of the reference, and reliance by the plaintiff upon the exercise by them of due care and skill in respect of its preparati~n. ~~ Counsel in Spring did not argue the case on this basis and, accordingly, Lord Goff said that his speech must be regarded as being of limited a~thority. ~~ Nevertheless, it is still of value in determining the scope of the principle, especially since Lord Goff also used it in Henderson v Merrett Syndicates and White v Jones, as did Lord Browne-Wilkinson. There have been some questions concerning the precise meaning of the phrase voluntary assumption of responsibility. 37 Some judges have said that it is more accurate to describe it as a deemed assumption of responsibility, because the 31 ibid at p 376 (per Lord Lowry). The only concrete evidence that might have been raised was not discussed before any of the courts. In Lawton v BOC Transhield Ltd [1987] 2 All ER 608, it was held that there was a duty of care in respect of references. The Court of Appeal in Spring overturned Lawton v BOC Trunshield; nevertheless, for almost six years it appeared that referees operated under the threat of liability in negligence. Similarly, in white v Jones, supra n 3, at p 297, Lord Goff noted that Ross v Caunters [1980] Ch 297 did not create undue problems for solicitors; in Spring, the same point could have been made regarding Lawton v BOC Trunshield. 32 [1989] AC 53. 33 See Bell-Booth Group Ltd v Attorney-General, supra n 25, for an example of how this could occur (the plaintiffs asserted that the defendants released information without taking reasonable care to allow them an opportunity to respond to criticisms of their products). 34 supra n 1, at pp 396, 398 (per Lord Woolf). 35 ibid at p 367. 36 ibid. 37 See generally Barker, Unreliable Assumptions in the Modern Law of Negligence (1993) 109 LQR 461. 0 The Modem Law Review Limited 1995 557
The Modern Law Review [Vol. 58 defendant, if asked, would almost certainly deny that he or she chose to assume legal liability.38 Lord Goff did not discuss the issue at length; however, in White v Jones, Lord Browne-Wilkinson stated that it should refer to a conscious assumption of responsibility for the task rather than a conscious assumption of legal liability to the plaintiff for its careful performance. 39 This would apply to most employers, since they can choose not to provide a reference4 and they know that the reference affects the plaintiff s employment prospects. But should it have applied in Spring? The defendants had no choice in the matter, for the LAUTRO rules required them to provide a full and frank reference to any prospective employers in the insurance industry. It would appear that the choice may not necessarily be a real choice. There has also been some doubt over the role of reliance in a voluntary assumption of re~ponsibility.~~ White v Jones should make it clear that it is not necessary that the plaintiff rely on the defendant to exercise care. However, in Spring, Lord Goff stated that reliance is essential; more specifically, he stated that an assumption of responsibility occurs where the plaintiff entrusts the defendant with the conduct of his affairs, in general or in particular. Lord Goff may have meant only that reliance or trust could provide evidence that there was a voluntary assumption of responsibility. But not even this is clear, because it cannot be said that the plaintiff entrusted the defendants with the preparation of the reference or, more generally, that he relied upon the defendants, because the LAUTRO rules negated any choice that any of the parties may have had in the matter. Moreover, the plaintiff never changed his conduct in any way as a result of the defendants actions.43 If there was any reliance, it was only in the general sense that their carelessness affected his employment prospects. Lord Goff s speech reveals that he did not limit the voluntary assumption of responsibility to situations involving a conscious choice. However, Hedley Byme itself concerns not only choice, but also responsibility for special skills and knowledge. The power inherent in the possession of a special skill or responsibility almost invites the courts to impose responsibility for its use.44 It underlies Lord Goffs analysis in Spring, where the defendants power over the plaintiffs economic well-being was so strong, and so obvious to the defendants, that a duty of care had to be imposed in respect of that power. Similarly, Lord Browne- Wilkinson s analysis of the voluntary assumption of responsibility also has connections with the idea that power invites responsibility. In white v Jones and Henderson v Merrett Syndicates, he noted that Hedley Byme was derived from Nocton v Lord Ashburton, which in turn was concerned with fiduciary duties. The modern cases reveal a link between tort law and fiduciary law, in that both are used to impose duties on those who gain power over others by possessing a special skill or knowledge. 45 38 39 40 41 42 43 44 45 ~~ Smith v Bush [1990] 1 AC 831, at p 862 @er Lord Griffiths); Caparo v LXckman, supra n 7, at p 607 @er Lord Oliver). White v Jones, supra n 3, at p 212. Gullear v J.F. Watson & Son Lrd [1979] IRLR 306; cf supra n 1, pp 388-389 @er Lord Slynn). See Barker, supra n 37, at pp 475-481. supra n 1, at p 369. It was not even clear that carelessness caused the prospective employers not to employ him, as the House of Lords remitted the case to the Court of Appeal to consider the issue of causation. Hence, it is difficult to argue that there was detrimental reliance when it is not yet decided that the defendants caused the plaintiffs loss. cf Barker, supra n 37, at p 476. On fiduciary law s role in controlling power derived from expertise, see Frankel, Fiduciary Law (1983) 71 CalifL Rev 795. 558 0 The Modern Law Review Limited 1995
July 19951 Spring v Guardian Assurance But even if imposing responsibility for power is a valid purpose of negligen~e,~~ why is it necessary to use the voluntary assumption of responsibility test to achieve it? Choice and power do not necessarily coincide, as Spring illustrates. In fiduciary law, where duties normally arise from voluntary undertakings, there are situations where the courts impose fiduciary duties in the absence of a voluntary undertaking. In tort law, there is no reason why the Caparo v Dickman test should not justify imposing a duty where there is no voluntary undertaking. In Spring, the facts must be stretched too far to find anything resembling a voluntary undertaking. Given that neither party had any real choice concerning the provision of the reference, it would appear that the facts were more amenable to the proximity analysis (or, as argued below, the contractual analysis). Indeed, Lords Slynn and Woolf were clearly just as concerned with protecting employees from the employer s power over their economic well-being; that they analysed the relationship in terms of employment does not detract from this. In some ways, it makes their reasoning more concrete. The contractual analysis Of the majority, only Lord Woolf discussed the contractual issue in He relied on Lord Bridge s speech in Scally v Southern Health and Social Services Board,48 where it was held that an employer owed a contractual duty to take reasonable steps to inform an employee of the steps involved in securing his pension benefits. As interpreted by Lord Woolf, Scally means that just as in the earlier authorities the courts were prepared to imply by necessary implication a term imposing a duty on an employer to exercise due care for the physical wellbeing of his employees, so in the appropriate circumstances would the court imply a like duty as to his economic well-being, the duty as to his economic well-being giving rise to an action for damages if it is breached. 49 Here, it was necessary to imply a specific term regarding references because the contract was for employment or services in an industry where it was normal practice to seek references, and an ex-employee would find it impossible to enter that industry except on the basis that a reference would be provided.50 At first sight, it may appear surprising that the principle in Scally should require an employer to take reasonable care to secure an employee s chances of finding employment elsewhere. However, there are similarities, since both Scally and Spring concern the employee s financial security after employment is terminated. Moreover, it is not reasonable to expect employees to bargain for references to be prepared care full^,^^ and implying such a term into the contract does not disrupt an existing allocation of risk.52 In any case, the scope of Spring is restricted, since it does not impose a contractual obligation to provide a referen~e.~~ 46 47 48 49 50 51 52 53 cf Lord Mustill in White v Jones, supra n 3, at p 216: the courts should not use tort law to act as second-line disciplinary tribunals imposing punishment in the shape of damages. Lord Slynn s discussion of the point is fairly brief (supra n 1, at pp 388-389) and he takes a similar approach to Lord Woolf. [1992] 1 AC 294. supra n 1, at pp 401-402 @er Lord Woolf). ibid at p 389 (per Lord Slynn) and p 402 @er Lord Woolf). See generally Stapleton, Duty of Care and Economic Loss (1991) 107 LQR 249, at p 292. ibid at pp 291-292. supra n 1, at pp 388-389 @er Lord Slynn). 0 The Modem Law Review Limited 1995 559
The Modern LAW Review [Vol. 58 Conclusions In Spring, negligence again presents itself as the avenue through which judges reform private law. The emphasis throughout was on negligence, although the speeches of Lords Woolf and Slynn demonstrate that contract could have provided a remedy. It is somewhat surprising that the contractual analysis did not dominate the speeches, especially since Scally indicates that the contractual analysis should be preferred in cases involving harm arising from empl~yment.~~ Yet only Lord Woolf held that the primary source of any liability is contractual rather than tortious, since the relationship with the defendants arose from the previous engagement;55 the other Law Lords did not address the point. We might also ask what would have happened if the plaintiff had brought the action in defamation. Would their Lordships have found a remedy by reforming the law of defamation? For example, would they have held that qualified privilege should not be available to employers or, if available, it should be rebuttable by proof of carelessness rather than malice? Certainly, Derbyshire County Council v Times Newspaperss6 suggests that the House of Lords is willing to take a fresh look at the rules of defamation where political values are at stake; would it do so where more personal or commercial values are at stake? It seems doubtfuls7; perhaps the employer s qualified privilege has stood too long in a tort beyond the redemption of the courts 58 for the judiciary to re-examine it.59 And perhaps the return of a more liberal view of negligence makes it unnecessary. Agitating for Part-Time Workers Rights Charlotte Villiers and Fidelma White In 1994, progress was made for part-timers in the pursuit of their rights at work. In Equal Opportunities Commission v Secretary of State for Employment, the House of Lords, having recognised the standing of the Equal Opportunities Commission (EOC), granted a declaration that provisions of the Employment Protection (Consolidation) Act 1978 (EPCA) indirectly discriminate against women and therefore are incompatible with European Community law. This involved reversing the decisions of the Divisional Court and the Court of Appeal. This case is significant for a number of reasons. First, while the case recognises the need to protect part-time workers, the EOC was successful because it was held ~ 54 supra n 48, at pp 302-304 (per Lord Bridge). 55 supra n 1, at p 390. Cf South Pacific Manufacturing Co Lid v New Zealand Security Consultants & Investigations Ltd, supra n 18, at p 297 (per Cooke P). 56 [1993] AC 534. 57 But see Lord Woolf, supra n 1, at p 400: it by no means follows that so far as references are concerned the same view should be taken of public policy as was taken when Whiteley v Adam was decided. 58 Slim v Daily Telegraph Lid [1968] 2 QB 157 (per Diplock LJ). 59 cf White v Jones, supra n 3, at p 216 (per Lord Mustill), and Hedley, Recovering Lost Legacies: White v Jones in the Lords [1995] 1 Web JCLI: if we are truly convinced that the will admitted to probate does not reflect [the testator s] wishes at the time of his death, why admit it to probate at all? *Lecturers in Law, University of Sheffield. We are grateful to Professor Tony Prosser and Ian Harden for their comments on an earlier draft of this note. 1 560 [1994] 1 All ER 910. 0 The Modem Law Review Limited 1995