The Companies Act

For purposes of discussion, policy will be defined as a legal guiding principle. This essay will examine how when applied to case law, policy shields the defendant from full liability and protects the court from the floodgates of litigation. It will illustrate the problem of how in engaging statutory law, it affects the claimant's right to a fair hearing. The essay will then elucidate on the ethicality of policy and its effects on society. It will conclude by stating that policy does control the responsibility of the defendant and it is up to the courts to exercise discretion when passing judgment on cases involving policy.

How policy limits the defendant's liability is evidenced in Caparo Industries plc v Dickman. The last step in the three stage test, formulated by Lord Bridge requires the court to consider it fair, just and reasonable to impose a duty on the defendant. 1 The House of Lords held that it was not reasonable to impose a duty on Dickman as under the Companies Act 1985, it was not under his duty to furnish information to shareholders on possible future investments in the company. 

To consider another case- Marc Rich v Bishop Rock Marine, the Nicholas H sank after developing cracks in her temporarily repaired hull, despite an attempt made by the certifier for her to dock for permanent repairs. 3 Lord Steyn held that it would not be fair, just and reasonable to impose a duty of care on a classification society as they were performing their duty for the cumulative benefit of all and thus do not have the liability of guaranteeing safety. 4 Furthermore, it was mentioned that imposing a duty on the defendants would open the courts to more litigation as the Hague Rules would be limiting on ship owners.

5 Indubitably, both cases conduct policy in a way that protects its defendants from an unjust claim. More importantly, it ensures the courts do not suffer from floodgates of liability, where there is an excess amount of litigation brought up to court which would prove inefficient to the system and be a burden to the government financially. 6 However to have policies limiting the responsibility of the defendant would mean that a compromise has to be made, in this case on statutory law.

To look at the European Convention on Human Rights (ECHR), it has been adapted into common law by the way of the Human Rights Act 1998. 7 In Osman v UK, where the police were negligent in their duty of protecting the claimant against an attack, they (police) claimed immunity under policy which states that the police owed no duty of care to victims. 8 This is contradictory to Article 6 in the ECHR, which establishes the rights to a fair trial for all. 9 The European Court of Human Rights (ECtHR) held that granting immunity as such would render the law incompatible.

10 Hence when policies trespass on the rights of a person, it is demonstrated that judges do employ the incremental approach to mould the law to deal with current cases. In addition, policy deals with adverse ethical issues as well. In Bolam v Friern Hospital Management Committee, the defendant is not liable based on the Bolam test – formulated by McNair J as the defendant had acted in line with what was accepted by a responsible body of medical experts. 11 While this is perfectly legal, it is also contentious as bioethics is based on the medical definition of what a reasonably skilled doctor is trained to undertake.

That the NHS Redress Act 2006 is in effect does offer consolation to reasonable victims otherwise not compensated in court. 13 However, the courts do still have a level of autonomy over decisions made and can overrule a medical panel's decision, with reason. 14 It is evident that policy plays a vital role in ensuring courts do not become awash with litigation. It is also a supported fact that policy does limit the liability of defendants and in doing so reduce their scope of duty. As successful as it is with litigation, we should not ignore the pitfalls of policy with consideration to the ECHR.

Until a satisfactory compromise has been reached, one can hope that judges will gradually introduce legislation that will fairly consider the policy and ethicality behind each case.


Books Bussani, M. & Palmer V. V. , Pure Economic Loss in Europe – Floodgates Opened. (Cambridge University Press 2003) Litan, R. E. & Winston C. , Liability – Perspectives and Policy. The Brookings Institution 1988 Lunney, M . & Oliphant, K. , Tort Law: Text and Materials (Oxford University Press, Oxford 2010) Spier, J. and Von Bar, C. ,The Limits of Liability: Keeping the Floodgates Shut. Kluwer Law International 1996.