Henderson v Merrett Syndicates

Facts

The claimants were Names at Lloyd's, individuals who accepted unlimited personal liability for losses on the syndicates in which they participated. The managing agents managed the underwriting of the syndicates. Some Names, the direct Names, had contracted with the managing agents; others, the indirect Names, had contracted only with members' agents, who placed them on syndicates managed by the managing agents. The Names suffered heavy losses, which they attributed to negligent underwriting and management by the managing agents, and sued them in contract and in tort.

Issue

Whether managing agents owed a duty of care in tort to the Names, both direct and indirect; and whether, where the parties are in a contractual relationship, the claimant may sue in tort as well as in contract.

Held

The managing agents owed a duty of care in tort to all the Names on the basis of an assumption of responsibility, and the direct Names could rely on the tort duty concurrently with their contract.

Ratio

• A person who assumes responsibility to another for the performance of professional or other services, on which the other relies, owes a duty of care in tort to avoid causing economic loss through negligent performance; the principle in Hedley Byrne is not confined to the giving of advice or information.
• Where the parties are in a contractual relationship, a concurrent duty of care in tort may exist unless the contract excludes it, and the claimant may choose the remedy more advantageous to him, including for limitation purposes.
• Indirect Names were owed a duty by the managing agents because the managing agents had assumed responsibility to them through the structure of sub-agency under which the managing agent acted for them.

The judgments

Key reasoning

• The managing agents held themselves out as having expert skill in underwriting, undertook to manage the Names' affairs, and had power to bind them, and the Names relied on that skill; that is the typical case of an assumption of responsibility.
• The reasoning in Hedley Byrne turned on the assumption of responsibility and reliance, not on the form of the statement, so that it extends to the performance of services, as the earlier cases on professional negligence concurrent with contract, including Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, showed.
• There was no sound reason to prevent a claimant relying on a tort duty where the contract does not exclude it, and permitting a choice avoids arbitrary distinctions between those who happened to contract directly with the defendant and those who did not.

Where it fits in the module

On the FHS Tort list under negligent statements and provision of services. Henderson is the pivot from Hedley Byrne, which concerned statements, to services, and is the key authority on concurrent liability in contract and tort and its consequences for limitation. It raises the debate what assumption of responsibility means, whether as a voluntary undertaking or an objective attribution by the court, and how it relates to the Caparo test of duty. Candidates should consider the effect of contract terms in limiting or excluding the tort duty and compare Spring v Guardian Assurance plc [1995] 2 AC 296 and White v Jones [1995] 2 AC 207.

Criticisms

• Assumption of responsibility is imprecise, since the court attributes responsibility on an objective basis to defendants who may have had no subjective intention, which can conceal policy choices about fairness and fails to distinguish assumption from mere reliance.
• Allowing a claimant to choose the tort claim can undermine the allocation of risk and the limitation periods agreed in the contract, and leaves it uncertain how far contract terms limit a tort duty.
• Extending the duty to indirect Names, who had no contract with the managing agents, strains the idea of voluntary assumption, since the responsibility rests on the structure of the market rather than on any individual undertaking.