Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd

Parsons (Livestock) Ltd v Uttley Ingham & Co Ltd [1978] QB 791 is an English contract law case, concerning remoteness of damage. In it, the majority held that losses for breach of contract are recoverable if the type or kind of loss is a likely result of the breach of contract. Lord Denning MR, dissenting on the reasoning, held that a distinction should be drawn between losses for physical damage (for which the same, restrictive test as in tort applies) and economic losses (where a wider remoteness rule applies).

Facts
Parsons farmed pigs. They bought bulk food storage hoppers from Uttley Ingham, who installed them on the farm. The ventilator top was not unsealed as it should have been when it was installed. Parsons did not notice this (it was 28 feet high). The pignuts became mouldy. Parsons saw this, but thought it would do them no harm. 254 pigs died from E. coli. Parsons sued Uttley Ingham for damages for loss of the pigs and trading profits.

Judgment
The Court of Appeal all held that the loss was not too remote. But the majority, Scarman LJ and Orr LJ held that the type of loss rather than the actual loss is relevant when applying the contract remoteness test. Scarman LJ agreed that it would be absurd if the test generally was different in contract or tort – just because of the cause of action. Lord Denning MR (dissenting on the reasoning) would have held that a distinction should be drawn in contract between loss of profit and physical damage. He relied on Hart and Honoré to say that a distinction between economic loss and physical damage is ‘emerging’ in contract, like in tort. For economic losses, it should have been foreseen as a ‘serious possibility’. For physical damage, there should be compensation if there is only a ‘slight possibility’.

The plaintiffs, H Parsons (Livestock) Ltd, have a fine herd of nearly 700 pigs at their farm in Derbyshire. They call it the Wayside Herd. They manage it most efficiently. They feed the pigs on special pignuts. They use about 10 tons a month of these pignuts. In order to store and handle the pignuts, the plaintiffs bought in 1968 a big hopper called a bulk feed storage hopper. They bought it from the makers, the defendants, Uttley Ingham & Co Ltd, who are sheet-metal workers. The plaintiffs paid £270 for it. It was a huge round metal bin 28 feet high and 8 feet 6 inches in diameter. It was cylindrical at the top and tapering down into a cone. It had a lid on the top with a ventilator in it. The pignuts go into the top and come out at the bottom.

The first hopper was so successful that in 1971 the plaintiffs ordered a second one to be just the same as the first. It cost £275. The defendants accepted the order in a letter of April 23, 1971, in these terms:

"We are very pleased to book your order for one bulk hopper exactly as supplied in 1968. ... Hopper fitted with ventilated top and complete with filler and breather pipes ... Ex works price £275. Carriage charges £15. We deliver in an upright position on your prepared concrete base and bolt down ... tipping the hopper off the back of the vehicle."

On August 2, 1971, the defendants delivered the hopper to the site. It was exactly the same as the first, but when the delivery man erected it in position he forgot to adjust the ventilator. He left it closed. It was fastened with a piece of tape which had been put on so as to stop it rattling on the journey. No one noticed the mistake, because the ventilator was at the top of the hopper 28 feet above the ground. The delivery man went off. The plaintiffs used the hopper. They put pignuts into it just as they did with the first hopper. On August 12, 1971, they filled it with 9½ tons of pignuts; on September 10, 8½ tons; on October 1, 8 tons.

At first all was well. But on September 28 a small number of the nuts appeared to be mouldy. The plaintiffs did not think this would harm the pigs. So they went on feeding them. Early in October more nuts turned mouldy. But still the plaintiffs were not unduly concerned. As a rule, mouldy nuts do not harm pigs. On Saturday, October 9, there was a bigger proportion of mouldy nuts; and some of the pigs were showing signs of illness. About six of the 21 sows suckling litters were very loose, and about seven or eight were not eating all their ration of nuts. Over the weekend the plaintiffs became really concerned. They did not know the cause. They telephoned the suppliers of the nuts. They telephoned the veterinary surgeon. The suppliers of nuts came. The veterinary surgeon came. They stopped feeding the pigs with nuts from the hopper. They got some bagged foods and fed them from the bags. They telephoned the defendants. On Friday, October 15, a representative of the defendants came. He climbed up to the top of the hopper. He found the ventilator closed. He opened it, When he came down, he said to the plaintiffs: "That appears to be your trouble."

It was indeed the trouble. After much evidence by experts, the judge found that the closed ventilator was the cause. But the effects remained so as to affect the herd greatly. A large number of the pigs suffered an attack of E. coli, which is very bad for pigs. It was triggered off by the eating of the mouldy nuts. The infection spread rapidly; 254 pigs died of a value of £10,000. They also lost sales and turnover resulting in big financial loss. The total claim is £20,000 or £30,000. The question is whether that damage is recoverable from the makers of the hopper, or whether it is too remote.

The judge had before him the speeches in the House of Lords in C Czarnikow Ltd v Koufos [1969] 1 AC 350 about remoteness of damage. That case draws a distinction between contract and tort. Remoteness in contract depends on what the parties "reasonably contemplated at the time of the contract," whereas in tort it depends on what could "reasonably be foreseen at the time of the wrongful act or omission." But the judge did not think either of those tests was applicable. He based his decision on the implied term that the goods should be reasonably fit for the purpose under the implied condition of section 14 (1) of the Sale of Goods Act 1893, as it then was. He held that this was an "absolute warranty" and that, in case of a breach, the seller was liable for all the damage of which the breach was the cause. The judge said, significantly:
 * The judge's findings

"The plaintiffs do not have to prove that the toxicity or its results were foreseeable to either party... there is no need to have recourse to the question of the presumed contemplation."

But, in case he was wrong on this point and that, being a breach of contract, he ought to consider what was "reasonably contemplated at the time of the contract," the judge went on to consider the facts in regard to it. He inquired whether the "damage that occurred through the outbreak of E. coli was within the reasonable contemplation of the parties." After considering the evidence, he said:

"Although I sympathise with the plaintiffs, who have no doubt suffered heavy loss as a result in fact on my findings of a breach of contract, I would not consider that I would be justified in finding that in the spring of 1971 at the time of the contract either a farmer in the position of the plaintiffs or a hopper manufacturer in the position of the defendants would reasonably have contemplated that there was either a very substantial degree of possibility or a real danger or serious possibility that the feeding of mouldy pignuts in the condition described by Mr. Parsons would cause illness in the pigs that ate them, even on an intensive farm such as that of the plaintiffs."

Applying the speeches in C Czarnikow Ltd v Koufos [1969] 1 AC 350, that finding would mean that the illness and death of the pigs was too remote to be an admissible head of damage.

The judge derived his "absolute warranty" from section 14 (1) of the Sale of Goods Act 1893 about reasonable fitness for the purpose. I agree that the warranty in section 14 (1) is absolute in this sense: if the goods are unfit owing to a latent defect, which could not be discovered by any amount of care, nevertheless the seller is liable. But I do not think this absoluteness means that the seller is liable for all consequences of a breach, however remote the consequences may be. He is only liable, as section 53 (2) of the Act of 1893 says, for "the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty." That section is an attempted codification of the rule in Hadley v Baxendale (1854) 9 Exch 341 and should be so interpreted.
 * The terms of contract

But I am not sure that section 14 (1) was really appropriate here. The contract was divisible into two parts: the sale of the hopper and the erection of it. Under the second part, the maker was under a duty to use reasonable care in erecting the hopper. But even so, here again the maker would not be liable for all consequences. He would only be liable for such damage "as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach:" see Hadley v Baxendale, 9 Exch 341, 354. That is virtually the same as section 53 (2).

On either view, therefore, the maker is not liable for all the consequences, but only for such damage as is not too remote in law. So I turn to examine the judge's findings of fact in regard to it.

As I read the judge's findings of fact, he was of opinion that the makers of the hopper could reasonably contemplate the following consequences as the result of the breach: (i) that the ventilator would remain closed whilst the hopper was in use; (ii) that the pignuts stored in it would become mouldy for want of proper ventilation; (iii) that the pignuts would be fed to the pigs in a mouldy condition.
 * The judge's findings of fact

But the judge, in the important extract I have already read from his judgment, was also of opinion that the makers would not reasonably contemplate that there was a serious possibility that the mouldy nuts would cause the pigs to become ill. There may have been a slight possibility, but not a serious possibility. It was so slight that the plaintiff pig farmers (who fed the nuts to the pigs knowing that they were mouldy) did not themselves feel any concern about feeding the mouldy nuts to the pigs.

By making that last finding the judge has presented us with a nice problem of remoteness of damage. Mr. Drake submitted that it means that the plaintiffs should fail. The action is for breach of contract. It has, he says, been held by the House of Lords that a contract-breaker is only liable for the consequences which he may reasonably contemplate as a serious possibility and not for those which he can only foresee as a slight possibility.

There is no problem here about causation. The closed ventilator was clearly the cause, or one of the causes, of the deaths of the pigs. There was an unbroken sequence all the way. There was no intervening human action such as gave rise to the discussion on causation in Weld-Blundell v Stephens [1920] AC 956 or Dorset Yacht Co Ltd v Home Office [1970] AC 1004, 1030. The only problem here is with remoteness of damage.

Remoteness of damage is beyond doubt a question of law. In C Czarnikow Ltd v Koufos [1969] A.C. 350 the House of Lords said that, in remoteness of damage, there is a difference between contract and tort. In the case of a breach of contract, the court has to consider whether the consequences were of such a kind that a reasonable man, at the time of making the contract, would contemplate them as being of a very substantial degree of probability. (In the House of Lords various expressions were used to describe this degree of probability, such as, not merely "on the cards" because that may be too low: but as being "not unlikely to occur" (see pp. 383 and 388); or "likely to result or at least not unlikely to result" (see p. 406); or "liable to result" (see p. 410); or that there was a "real danger" or "serious possibility" of them occurring (see p. 415).)
 * The law as to remoteness

In the case of a tort, the court has to consider whether the consequences were of such a kind that a reasonable man, at the time of the tort committed, would foresee them as being of a much lower degree of probability (In the House of Lords various expressions were used to describe this, such as, it is sufficient if the consequences are "liable to happen in the most unusual case" (see p. 385); or in a "very improbable" case (see p. 389); or that "they may happen as a result of the breach, however unlikely it may be, unless it can be brushed aside as far-fetched" (see p. 422).)

I find it difficult to apply those principles universally to all cases of contract or to all cases of tort: and to draw a distinction between what a man "contemplates" and what he "foresees." I soon begin to get out of my depth. I cannot swim in this sea of semantic exercises - to say nothing of the different degrees of probability - especially when the cause of action can be laid either in contract or in tort. I am swept under by the conflicting currents. I go back with relief to the distinction drawn in legal theory by Professors Hart and Honoré in their book Causation in the Law (1959), at pp. 281-287. They distinguish between those cases in contract in which a man has suffered no damage to person or property, but only economic loss, such as, loss of profit or loss of opportunities for gain in some future transaction: and those in which he claims damages for an injury actually done to his person or damage actually done to his property (including his livestock) or for ensuing expense (damnum emergens) to which he has actually been put. In the law of tort, there is emerging a distinction between economic loss and physical damage: see Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27, 36-37. It underlies the words of Lord Wilberforce in Anns v Merton London Borough Council [1978] AC 728, recently, where he classified the recoverable damage as "material, physical damage." It has been much considered by the Supreme Court of Canada in Rivtow Marine Ltd v Washington Iron Works and Walkem Machinery & Equipment Ltd [1973] 6 WWR 692 and by the High Court of Australia in Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976) 51 ALGR 270.

It seems to me that in the law of contract, too, a similar distinction is emerging. It is between loss of profit consequent on a breach of contract and physical damage consequent on it.

Loss of profit casesI would suggest as a solution that in the former class of case - loss of profit cases - the defaulting party is only liable for the consequences if they are such as, at the time of the contract, he ought reasonably to have contemplated as a serious possibility or real danger. You must assume that, at the time of the contract, he had the very kind of breach in mind - such a breach as afterwards happened, as for instance, delay in transit - and then you must ask: ought he reasonably to have contemplated that there was a serious possibility that such a breach would involve the plaintiff in loss of profit? If yes, the contractor is liable for the loss unless he has taken care to exempt himself from it by a condition in the contract - as, of course, he is able to do if it was the sort of thing which he could reasonably contemplate. The law on this class of case is now covered by the three leading cases of Hadley v Baxendale, 9 Exch. 341; Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528; and C Czarnikow Ltd v Koufos [1969] 1 AC 350. These were all "loss of profit" cases: and the test of "reasonable contemplation" and "serious possibility" should, I suggest, be kept to that type of loss or, at any rate, to economic loss.

In the second class of case - the physical injury or expense case - the defaulting party is liable for any loss or expense which he ought reasonably to have foreseen at the time of the breach as a possible consequence, even if it was only a slight possibility. You must assume that he was aware of his breach, and then you must ask: ought he reasonably to have foreseen, at the time of the breach, that something of this kind might happen in consequence of it? This is the test which has been applied in cases of tort ever since The Wagon Mound cases [1961] AC 388 and [1967] 1 AC 617. But there is a long line of cases which support a like test in cases of contract.
 * Physical damage cases

One class of case which is particularly apposite here concerns latent defects in goods: in modern words "product liability." In many of these cases the manufacturer is liable in contract to the immediate party for a breach of his duty to use reasonable care and is liable in tort to the ultimate consumer for the same want of reasonable care. The ultimate consumer can either sue the retailer in contract and pass the liability up the chain to the manufacturer, or he can sue the manufacturer in tort and thus by-pass the chain. The liability of the manufacturer ought to be the same in either case. In nearly all these cases the defects were outside the range of anything that was in fact contemplated, or could reasonably have been contemplated, by the manufacturer or by anyone down the chain to the retailers. Yet the manufacturer and others in the chain have been held liable for the damage done to the ultimate user, as for instance the death of the young pheasants in Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1969] 2 AC 31 and of the mink in Christopher Hill Ltd v Ashington Piggeries Ltd [1972] AC 441. Likewise, the manufacturers and retailers were held liable for the dermatitis caused to the wearer in the woollen underwear case of Grant v. Australian Knitting Mills Ltd. [1936] A.C. 85, even though they had not the faintest suspicion of any trouble. So were the manufacturers down the chain to the sub-contractors for the disintegrating roofing tiles in Young & Marten Ltd v McManus Childs Ltd [1969] 1 AC 454.

Another familiar class of case is where the occupier of premises is under the common duty of care, either in pursuance of a contract with a visitor or under the Occupiers' Liability Act 1957. If he fails in that duty and a visitor is injured, the test of remoteness must be the same no matter whether the injured person enters by virtue of a contract or as a visitor by permission without a contract. No matter whether in contract or tort, the damages must be the same. Likewise, when a contractor is doing work on premises for a tenant - and either the tenant or a visitor is injured - the test of remoteness is the same no matter whether the person injured is a tenant under the contract or a visitor without a contract: see A C Billings & Sons Ltd v Riden [1958] AC 240.

Yet another class of case is where a hospital authority renders medical services in contract to a paying patient and gratuitously to another patient without any contract. The paying patient can sue in contract for negligence. The poor patient can sue in tort: see Cassidy v Ministry of Health [1951] 2 KB 343, 359-360. The test of remoteness should be the same whether the hospital authorities are sued in contract or in tort: see Esso Petroleum Co Ltd v Mardon [1976] QB 801, 802.

Instances could be multiplied of injuries to persons or damage to property where the defendant is liable for his negligence to one man in contract and to another in tort. Each suffers like damage. The test of remoteness is, and should be, the same in both.

Coming to the present case, we were told that in some cases the makers of these hoppers supply them direct to the pig farmer under contract with him, but in other cases they supply them through an intermediate dealer - who buys from the manufacturer and resells to the pig farmer on the self-same terms - in which the manufacturer delivers direct to the pig farmer. In the one case the pig farmer can sue the manufacturer in contract. In the other in tort. The test of remoteness should be the same. It should be the test in tort.

The present case falls within the class of case where the breach of contract causes physical damage. The test of remoteness in such cases is similar to that in tort. The contractor is liable for all such loss or expense as could reasonably have been foreseen, at the time of the breach, as a possible consequence of it. Applied to this case, it means that the makers of the hopper are liable for the death of the pigs. They ought reasonably to have foreseen that, if the mouldy pignuts were fed to the pigs, there was a possibility that they might become ill. Not a serious possibility. Nor a real danger. But still a slight possibility. On that basis the makers were liable for the illness suffered by the pigs. They suffered from diarrhoea at the beginning. This triggered off the deadly E. coli. That was a far worse illness than could then be foreseen. But that does not lessen this liability. The type or kind of damage was foreseeable even though the extent of it was not: see Hughes v Lord Advocate [1963] AC 837. The makers are liable for the loss of the pigs that died and of the expenses of the vet and such like, but not for loss of profit on future sales or future opportunities of gain: see Simon v Pawson and Leafs Ltd (1932) 38 Com.Cas. 151.
 * Conclusion

So I reach the same result as the judge, but by a different route. I would dismiss the appeal.