Williams v. Natural Life Health Foods (1998), 225 N.R. 368 (HL)
MLB headnote and full text
Williams and another (respondents) v. Natural Life Health Foods Ltd. and Mistlin
(appellant).
Indexed As: Williams et al. v. Natural Life Health Foods Ltd. et al.
House of Lords
London, England
Lord Goff of Chieveley, Lord Steyn, Lord Hoffmann,
Lord Clyde and Lord Hutton
April 30, 1998.
Summary:
The central issue in this case was whether a director of a franchisor company was personally liable to franchisees for loss which they suffered as a result of negligent advice given to them by the franchisor company. When the franchisor company was wound up, the action continued against the director alone.
The trial court, in a decision reported [1996] B.C.L.C. 288, held that the franchisor company was liable to the franchisees on the principle established in Hedley Byrne & Co. v. Heller & Partners Ltd. The court also found the director personally liable on the same basis. Damages were fixed at £85,000. The director appealed.
The Court of Appeal of England, in a decision reported [1997] 1 B.C.L.C. 131, dismissed the appeal. The court held that the trial judge was entitled to find the director personally liable to the franchisees on the basis of an assumption of responsibility. The director appealed. The franchisees introduced an alternative argument that the director was liable as a joint tortfeasor with the company under the expanded Hedley Byrne principle.
The House of Lords allowed the director's appeal.
Company Law - Topic 4181
Directors - Liability of directors - General - Mistlin formed a company (Natural Life Health Foods Ltd.) to franchise the concept of retail health food stores - He was the managing director and principal shareholder - The company employed Padwick and Shepherd, who had some franchise experience - Williams expressed interest in a franchise - Natural Life sent detailed financial projections which demonstrated the likely future profitability of the proposed store - While Mistlin had played a prominent part in the preparation of the projections, Williams only dealt with Padwick and had no knowledge of or dealings with Mistlin - When the franchise failed, Williams sued Natural Life on the ground of negligent advice - Later, Mistlin was added as a defendant based on an assumption of personal liability - The House of Lords dismissed the claim against Mistlin.
Company Law - Topic 4183
Directors - Liability of directors - For torts - [See Company Law - Topic 4181].
Franchises - Topic 2065
Franchise agreement - Duties of franchisor - During negotiations for franchise - [See Company Law - Topic 4181].
Torts - Topic 7162
Joint and concurrent tortfeasors - Joint tortfeasors - What constitutes - Mistlin formed a company to market franchises - He had three employees - Williams enquired about a franchise - One of the employees dealt with Williams even though Mistlin played a major role in preparing the financial projections - When the franchise failed, Williams sued the franchisor for negligent advice - He added Mistlin personally as a joint tortfeasor - The House of Lords, in dismissing the claim against Mistlin, stated that "[i]n the present case liability of the company is dependent on a special relationship with the respondents giving rise to an assumption of responsibility. Mr. Mistlin was a stranger to that particular relationship. He cannot therefore be liable as a joint tortfeasor with the company. If he is to be held liable to the respondents, it could only be on the basis of a special relationship between himself and the respondents. There was none." - See paragraph 17.
Torts - Topic 8992
Duty of care - Particular relationships - Negligent words - Preparation of financial information - [See Company Law - Topic 4181].
Cases Noticed:
Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465; [1963] 2 All E.R. 575 (H.L.), consd. [para. 8].
Henderson v. Merrett Syndicates Ltd. - see Arbuthnott et al. v. Fagan and Feltrim Underwriting Agencies Ltd. et al.
Arbuthnott et al. v. Fagan and Feltrim Underwriting Agencies Ltd. et al., [1995] 2 A.C. 145; 173 N.R. 173 (H.L.), consd. [para. 10].
Trevor Ivory Ltd. v. Anderson, [1992] 2 N.Z.L.R. 517 (C.A.), apprvd. [para. 11].
Fairline Shipping Corp. v. Adamson, [1975] Q.B. 180, dist. [para. 12].
London Drugs Ltd. v. Kuehne & Nagel International Ltd. - see London Drugs Ltd. v. Brassart and Vanwinkel.
London Drugs Ltd. v. Brassart and Vanwinkel (1992), 143 N.R. 1; 18 B.C.A.C. 1; 31 W.A.C. 1; 97 D.L.R.(4th) 261 (S.C.C.), addendum 147 N.R. 336; 21 B.C.A.C. 159; 37 W.A.C. 159, consd. [para. 13].
Edgeworth Constuction Ltd. v. Lea (N.D.) & Associates Ltd. et al., [1993] 3 S.C.R. 206; 157 N.R. 241; 32 B.C.A.C. 221; 53 W.A.C. 221, consd. [para. 13].
Smith v. Bush, [1990] 1 A.C. 831; 104 N.R. 355 (H.L.), consd. [para. 14].
White et al. v. Jones et al., [1995] 2 A.C. 207; 179 N.R. 197 (H.L.), consd. [para. 14].
Pioneer Container (Ship) - see Ship K.H. Enterprise (Cargo Owners) v. Ship Pioneer Container.
Ship K.H. Enterprise (Cargo Owners) v. Ship Pioneer Container, [1994] 2 A.C. 324; 166 N.R. 207 (P.C.), consd. [para. 14].
Authors and Works Noticed:
Barker, Unreliable Assumptions in the Modern Law of Negligence (1993), 109 L.Q.R. 461, generally [para. 14].
Cane, Tort Law and Economic Interests (2nd Ed.), pp. 177, 200 [para. 14].
Cooke (Lord), of Thorndon, Taking Salomon Further, Turning Points of the Common Law, Hamlyn Lecture (1997), p. 18, note 50 [para. 12].
Hepple, The Search for Coherence (1997), 50 Current Legal Problems 67, p. 88 [para. 14].
Counsel:
Michael Block, Q.C., for the appellants;
J. Munby, Q.C., and Gerald van Tonder, for the respondents.
Agents:
Radcliffe Crossman & Block, for the appellants;
Williams & Co., for the respondents.
This appeal was heard on March 4, 1998, in London, England, before Lord Goff of Chieveley, Lord Steyn, Lord Hoffmann, Lord Clyde and Lord Hutton, of the House of Lords.
On April 30, 1998, the decision of the House of Lords was given and the following speeches were delivered:
Lord Goff of Chieveley - see paragraph 1;
Lord Steyn - see paragraphs 2 to 18;
Lord Hoffmann - see paragraph 19;
Lord Clyde - see paragraph 20;
Lord Hutton - see paragraph 21.
