8 December 2011 | Allan Wardhaugh

Can you claim damages for a breach of contract and breach of tortious duty of care?

If one party breaches a contract the other party can claim damages, but in certain circumstances they may instead wish to claim on a different principle – that the breaching party has been negligent. Lloyd’s insurance underwriting ‘Names’ work in groups known as ‘syndicates’. Syndicates then provide insurance cover. While the actual structures are complicated, Names generally use managing agents to set up and manage these syndicates. Merrett Syndicates Limited was one such managing agent company.

The aftermath of Hurricane Andrew in 1992 caused devastating losses for the insurance industry. Names sometimes bore unlimited liability for some of those losses where they were part of syndicates that had provided insurance cover for companies/businesses affected.

Henderson (who was a Name) and others lost money by being part of a Lloyd’s syndicate managed by Merrett. He argued Merrett should be liable for breach of contract for managing the syndicate badly and also in tort (delict in Scotland) for negligence.

Merrett argued that, due to the fact the Names were already protected by the contract they had with it, the Names could not also be owed a tortious (delictual) duty of care by Merrett under which the negligence claim was founded. In essence, Merrett’s argument was that, if a Name could claim for breach of contract, why should he also be able to claim in tort (delict)? The House of Lords found that Merrett did owe a tortious (delictual) duty of care to the Names even where there was also a contract. In doing so, the House of Lords established that it is possible to make a claim for the same loss in both contract and in tort/delict. The case is now firmly established as a reliable precedent. Therefore, if you have a claim for breach of contract, you are not prevented from also making a claim for breach of tortious/delictual duty of care. So in the performance of services under a contract, you may owe a duty of care to the recipient of the services in tort/delict as well as your contractual obligations.

Why would you want to bring an action under tort/delict rather than for breach of contract? One example may be that a contractual term limits the time during which you can raise an action for the breach of contract.

☛ Allan Wardhaugh is a partner at Dundas & Wilson.