England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBENF 96/1529/C

COURT OF APPEAL (CIVIL DIVISION )

(HIS HONOUR JUDGE ROBERT TAYLOR

Sitting as a Deputy Judge of the High Court )

Royal Courts of Justice

The Strand

London

Wednesday 26 March 1997

B e f o r e:

THE LORD CHIEF JUSTICE OF ENGLAND

(Lord Bingham of Cornhill )

LORD JUSTICE PETER GIBSON

and

LORD JUSTICE PHILLIPS

B E T W E E N:

(1) PAUL REEMAN

(2) VIVIENNE MARY REEMAN Respondents/Plaintiffs

- v -

(1) DEPARTMENT OF TRANSPORT Appellant

(2) WEST MARINE SURVEYORS & CONSULTANTS

(3) RICHARD PRIMROSE LTD

Defendants

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(Computer Aided Transcription by

Smith Bernal, 180 Fleet Street, London EC4A 2HD

Telephone 0171 831 3183

Official Shorthand Writers to the Court)

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MR RICHARD AIKENS QC and MR MICHAEL NOLAN (instructed by The

Treasury Solicitor) appeared on behalf of THE APPELLANT

(THE FIRST DEFENDANT)

MR AUGUSTUS ULLSTEIN QC and MR PAUL STOREY (instructed by Messrs

Hooper & Woolen, Torquay) appeared on behalf of THE RESPONDENTS

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J U D G M E N T

(As Approved by the Court )

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THE LORD CHIEF JUSTICE: I will ask Lord Justice Phillips to give the first judgment.

LORD JUSTICE PHILLIPS: On 3 July 1989 Mr and Mrs Reeman bought a fishing vessel called Cornelis Johanna from Mrs Reeman's brother, Mr Charlton. The initiative for this purchase was Mr Reeman's. He had sailed with his brother-in-law as an engineer and deckhand and decided to take on the role of owner and skipper of a working fishing vessel. No British registered fishing vessel can put to sea unless she carries a certificate issued by the Department of Transport ("the Department") that certifies that she complies with various statutory regulations designed to ensure that she is seaworthy. When Mr and Mrs Reeman bought the vessel she carried such a certificate. They relied on this as demonstrating that the vessel's design and construction rendered her fit for service as a fishing vessel. Unfortunately the Department surveyor responsible for the issue of that certificate had failed to carry out his duties in relation to it with due skill and care. He had made an arithmetical error in calculating the vessel's stability. This led him to issue a certificate indicating that her stability was satisfactory when, in fact, she was unstable. The error came to light in the year after the purchase of the vessel by the Reemans when, in October 1990, the Department carried out stability tests and found that the vessel did not meet the minimum requirement. The result was a financial disaster for Mr and Mrs Reeman. The vessel's certificate was withdrawn, so that she could not longer put to sea. Attempts to make modifications to her to improve her stability demonstrated that she could not be made to satisfy the Departments's minimum requirements, at least without major expenditure that was beyond the Reemans' means.

In June 1992 Mr and Mrs Reeman began the present action. They claimed against the Department damages for breach of the common law duty of care alleged to have been owed to them under the law of negligence. They joined as second defendants surveyors who had carried out a condition survey of the vessel and as third defendants valuers who had produced a valuation of the vessel. The second defendants went into liquidation and the claim against them was not pursued. On 17 December 1996 His Honour Judge Robert Taylor, sitting as a Deputy Judge of the High Court, ordered that judgment be entered for the plaintiffs against the Department, for damages to be assessed. The claim against the third defendants was dismissed and a Sanderson order was made, under which the Department was ordered to pay the third defendants' costs.

By this appeal the Department appeals both against the finding of liability to the plaintiffs and against the Sanderson order. We have acceded to the sensible suggestion of all three parties that the appeal should, in the first instance, be restricted to the issue of the Department's liability to the plaintiffs.

In his careful and lucid judgment the judge has summarised the statutory and regulatory regime under which the Department issued its certificate and made detailed findings as to the effect of this certificate in inducing the Reemans to purchase the vessel and as to what should reasonably have been foreseen as to that effect. On the first day of the trial the Department conceded that want of due care had attended the issue of the certificate. Before us the judge's findings on foreseeability and causation have not been challenged. The sole issue raised by this part of the appeal is whether the judge was correct in law to rule that, under the relevant principles of the tort of negligence, the Department owed a duty to Mr and Mrs Reeman to exercise reasonable care not to cause them the pecuniary loss which they have sustained.

The statutory provisions in relation to fishing vessels form part of a complex regime of primary and subordinate legislation designed to ensure that merchant vessels of all descriptions are constructed and maintained in seaworthy condition. Much of this regime represents compliance with the requirements of international convention, designed to ensure a common approach to maritime safety on the part of all maritime nations. Aspects of ship safety covered by this regime include design and construction of both dry cargo vessels and tankers, tonnage measurement, loadlines, navigational equipment, life-saving appliances and wireless telegraphy. There is a common scheme to most aspects of this regime. The relevant department is required to ensure compliance with the various regulations by periodic survey and by the issue of certificates of compliance. Putting to sea without the requisite certificates is subject to penal sanctions.

The provisions of relevance in the present case are those of the Fishing Vessels (Safety Provisions) Act of 1970 and the Fishing Vessels (Safety Provisions) Rules 1975, made pursuant to the Act. The Rules lay down detailed requirements in relation to the construction of fishing vessels covering the structural strength of the hull, watertight integrity, boilers and machinery, bilge pumping arrangements, electrical equipment and installations and freeboard and stability.

The detailed requirements of the Rules in relation to stability were not appropriate for a vessel of the age and type of the Cornelis Johanna. In such circumstances it was the practice of the Department to exercise its statutory powers to exempt the vessel from compliance with those requirements, but to substitute a requirement that the vessel demonstrate adequate stability on the basis of calculations based on the performance of the vessel when subjected to a roll period test.

The Rules make provision for periodic surveys to ensure that their requirements are complied with and for the issue of a United Kingdom Fishing Vessel Certificate, valid for 48 months, subject to the possibility of extension, certifying compliance. This certificate is required to be posted on the vessel, and it is an offence to go to sea unless such a certificate is in force.

The Facts :

The Cornelis Johanna was built in Holland in 1951 as a beam trawler. She was lengthened, overhauled and refitted in about 1972. In 1977 she was imported from Holland by Pynn Fisheries Ltd of Brixham, who applied to the Department for a Fishing Vessel Certificate. A survey was carried out by a Mr Jones, a surveyor employed by the Department. He conducted a roll period test and carried out stability calculations on the basis of the results. Unhappily he made a negligent error when calculating the vessel's metacentric height, which led to the conclusion that the vessel satisfied the Department's stability requirements, when in fact she failed so to do by a significant margin. Having received Mr Jones' report, the Department issued a Fishing Vessel Certificate, valid to 30 September 1981. The validity of this certificate was subsequently extended, without further survey, to 30 September 1985.

In January 1986 Mr Jones re-surveyed the vessel. He did not, however, subject her to a new roll test, as he should have done. He simply set out again the erroneous calculations based on the results of his previous roll test. In the result his negligence led to the issue of a fresh Fishing Vessel Certificate on 21 February 1986, valid until 30 September 1989.

Thereafter, the vessel passed through a number of different ownerships until it was acquired by Mr Charlton in 1987. In June 1989, just before the vessel was sold to Mr and Mrs Reeman, the Department extended the validity of the certificate to February 1990.

The following findings of the judge are not challenged by the Department.

1. It was likely that the vessel would be sold while the certificate was in force.

2. The certificate would indicate to a potential purchaser that the vessel was stable and satisfied the requirements of the Department in that regard.

3. It was very likely that a potential purchaser would rely upon the certificate as demonstrating that the stability of the vessel was satisfactory when considering whether to purchase the vessel and would not seek any independent verification of that fact.

4. A Department surveyor would be aware of all these matters.

In these circumstances Mr Aikens QC for the Department accepts that it was reasonably foreseeable to Mr Jones that negligence on his part in conducting the survey might result in pecuniary loss to a future purchaser of the vessel. He challenges, however, the judge's conclusion that these facts sufficed to place the Department under a duty of care to Mr and Mrs Reeman in relation to the survey and certification of the vessel.

The formulation of the circumstances in which a tortious duty arises to exercise reasonable care not to cause harm to another is currently a constant preoccupation of the courts both in this country and throughout the common law world. The difficulties that can be inherent in this task are reflected by the fact that we have been referred to no less than five decisions on the topic in the House of Lords in the last two years, in three of which there were dissenting opinions. It is possible to identify a number of milestones in the development of the law of negligence and to note that the path which they mark is not one which progresses in a straight direction. The first relevant milestone is Donoghue v Stevenson [1932] AC 532, in which Lord Atkin advanced at page 580 the proposition:

"You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, when, in law is my neighbour? The answer seems to be -- persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question."

This test was propounded in the context of the duty not to cause physical harm. It equates the proximity of the relationship giving rise to the duty with reasonable foreseeability of the harm in question. In the context of physical harm directly caused the test has survived to the present day, and for some three decades it was thought that the law of negligence did not extend to imposing a duty to exercise care not to cause loss which was purely pecuniary. This view of the law was changed by the next milestone case, Hedley Byrne v Heller [1964] AC 1129. In that case the House of Lords held that the principle in Donoghue v Stevenson could apply in a situation where the harm caused was purely pecuniary. But their Lordships made it clear that in such a case foresight of the likelihood of such harm was not, of itself, enough to create the relationship of proximity that gave rise to the duty of care. While they did not suggest that it was possible to define the circumstances which would give rise to a duty of care in relation to economic harm, the following factors were identified as material: Advice was being given by professional men in a relationship akin to contract. The advisors voluntarily undertook the responsibility of giving the advice. They knew the purpose for which the advice was being sought and that the person seeking the advice would probably act upon it.

The next milestone case to which I would refer is Dorset Yacht Co v Home Office [1970] AC 1004 in which Lord Reid suggested at page 1027 that Lord Atkin's statement in Donoghue v Stevenson ought to be applied as a matter of principle "unless there is some justification or valid explanation for its exclusion".

These three milestone cases were referred to by Lord Wilberforce in the next case to which I would turn, Anns v Merton London Borough Council [1978] AC 728 at page 751 as supporting the following proposition:

".... the position has now been reached that in order to establish that a duty of care arises in a particular situation it is not necessary to bring the facts of that situation within those of previous situations in which a duty of care has been held to exist. Rather the question has to be approached in two stages. First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter -- in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed, or the damages to which a breach of it may give rise."

Thus far the path marked by the milestones has run reasonably straight, but the next milestone marks a U-turn. In Caparo v Dickman [1990] 2 AC 605, Lord Bridge at page 617, after referring to the passage of the speech of Lord Wilberforce in Anns to which I have just referred, said:

"But since the Anns case a series of decisions of the Privy Council and of your Lordships' House, notably in judgments and speeches delivered by Lord Keith of Kinkel, have emphasised the inability of any single general principle to provide a practical test which can be applied to every situation to determine whether a duty of care is owed and, if so what is its scope: see Governors of Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210, 239F-241C; Yuen Kun Yeu v Attorney-General of Hong Kong [1988] AC 175, 190E-194F; Rowling v Takano Properties Ltd [1988] 473; Hill v Chief Constable of West Yorkshire [1989] AC 53, 60B-D. What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of 'proximity' or 'neighbourhood' and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other. But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes."

This passage has since been generally accepted as representing the correct approach to the identification of a duty of care in the law of negligence. As Saville LJ observed in Marc Rich & Co v Bishop Rock Ltd [1994] 1 WLR 1071 at 1082, foreseeability, proximity of relationship and the question of whether it is fair, just and reasonable to impose a duty of care are matters which overlap and are really facets of the same thing. When confronted with a novel situation the court does not, however, consider these matters in isolation. It does so by comparison with established categories of negligence to see whether the facts amount to no more than a small extension of a situation already covered by authority, or whether a finding of the existence of a duty of care would effect a significant extension to the law of negligence. Only in exceptional cases will the court accept that the interests of justice justify such an extension of the law. One recent example of such a case to which we have been referred was White v Jones [1995] 2 AC 287. Another, arguably, was Henderson v Merrett Syndicates Ltd [1995] 2 AC 145. Both those cases involved professional men who had undertaken contractual duties for reward for the benefit of specific third parties. They were held, in the special circumstances of each case, to owe tortious duties of care to those third parties. The facts of those cases have nothing in common with the present case, and do not, in my view, provide any assistance to its resolution.

The judge purported to follow the three stage test commended by Lord Bridge in Caparo. Foreseeability of the possibility of harm was not seriously in issue. As to proximity, the judge was particularly impressed by the following passages in the speeches of Lord Bridge and Lord Oliver in Caparo:

".... looking only at the circumstances of these decided cases where a duty of care in respect of negligent statements has been held to exist, I should expect to find that the 'limit or control mechanism .... imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence' rested in the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the 'proximity' between the plaintiff and the defendant, that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in the connection with a particular transaction or transactions of a particular kind (eg in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind." (per Lord Bridge at page 621)

"What can be deduced from the Hedley Byrne case, therefore, is that the necessary relationship between the maker of a statement or giver of advice ("the adviser") and the recipient who acts in reliance upon it ("the advisee") may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry; and (4) it is so acted upon by the advisee of his detriment. ....

.... the absence of a positive intention that the advice shall be acted upon by anyone other than the immediate recipient -- indeed an expressed intention that it shall not be acted upon by anyone else -- cannot prevail against actual or presumed knowledge that it is in fact likely to be relied upon in a particular transaction without independent verification." (per Lord Oliver at page 638)

Applying these passages to the facts of the case, the judge drew the following conclusions in relation to proximity:

".... it seems to me, first of all, that the Department knew that the statement in question, that is the statement made by the certificate that the vessel was stable or at least had satisfied the Department's stability requirements, would be communicated to the plaintiffs as members of an identifiable class, namely prospective purchasers of the vessel. As I understand the words of Lord Oliver in the passage which I have quoted, such knowledge may be actual or inferential and it is not necessary that the plaintiffs should be specifically identified as the ultimate recipients. It seems to me that it was inevitable, and the Department must have known it, that any prospective purchaser would see the certificate and read into it the statement which I consider that it communicated.

Second, the Department knew, actually or inferentially, that the statement in question would be communicated to a prospective purchaser specifically in connection with a transaction of a particular kind, namely the purchase of the vessel.

Third, the Department knew, actually or inferentially, that a prospective purchaser such as the plaintiffs would be very likely to rely on the statement for the purpose of deciding whether or not to enter upon the purchase of the vessel.

Furthermore, in my view the Department knew, actually or inferentially, the plaintiffs would be very likely to do so without independent verification.

As I understand the speeches of Lord Bridge and Lord Oliver in Caparo, provided these conditions are met, the fact that the purpose for which the statement is communicated may differ from the purpose for which the recipient relies upon it does not prevent a special relationship from arising, provided that the maker of the statement knows, actually or inferentially, that the recipient is likely to rely on the statement for the latter purpose. In my judgment (i) the virtual certainty that the certificate would be communicated to a prospective purchaser such as the plaintiffs; (ii) the extreme likelihood that a prospective purchaser such as the plaintiffs would rely on the certificate in deciding whether to purchase; (iii) the overwhelming probability that they, and indeed their advisers, would do so without independent verification; and (iv) that all these matters were known actually or inferentially to the Department, establishes the requisite degree of proximity between the Department and the plaintiffs."

As to whether it was fair, just and reasonable to impose a duty of care, the judge held that it was, having particular regard to the fact that Mr and Mrs Reeman had no right of redress against any party other than the Department. He added at page 63:

"I bear in mind the importance stressed in Caparo and other cases of not subjecting the maker of a statement to liability in an indeterminate amount for an indeterminate period to an indeterminate class, and the necessity of having some limit or control mechanism imposed on liability for economic loss. It seems to me, however, that applying the criteria of fairness, justice and reasonableness, it is possible to set an acceptable limit or control mechanism which substantially avoids the mischiefs in question in this particular case. This would be to confine the duty to persons who actually purchase the relevant vessel during the currency of the certificate in question. In other words, I would exclude from such a duty a party such as a banker or an insurer who might be likely to rely on the certificate. I would also exclude cases where the purchaser had placed reliance on a certificate after it had expired (except where, as in the present case, the errors in an earlier certificate had been perpetuated by a later one). Both these seem to me to be fair, just and reasonable exclusions."

Mr Aikens has not sought to challenge the judge's conclusions in relation to foreseeability. He has, however, submitted that the judge has erred in his conclusions as to the other two limbs of Lord Bridge's test in Caparo.

Mr Aikens submits that the judge has applied the dicta of Lord Bridge and Lord Oliver in Caparo erroneously and out of context. In my judgment that submission is well founded. The facts of this case raise the question of the liability that attaches to the performance of statutory duties in a type of situation that has distinguishing features that are readily identifiable and commonplace. The duties relate to the regulation of the performance of obligations of owners of property designed to be used for commercial purposes that involve potential risks to third parties. The properties involved in the present case are fishing vessels. The duties of the owners of those vessels, that are regulated by the Department, are designed to ensure that those vessels are seaworthy for the protection of those who put to sea in them. Regulation of similar duties owed by owners of cargo vessels would seem designed to protect not merely crew, but the owners of cargo carried in the ships, and those at risk of being damaged by pollution in the event of escape of cargo. Similar regulatory functions are carried out by designated authorities in relation to the safety of premises frequented by the public such as hotels, theatres and dance halls. Vehicles are required to be regularly tested to ensure that they are roadworthy. In most of these cases, potential purchasers of the property in question are likely to be influenced, when deciding whether and for how much to purchase the property, by the certificate which appears to demonstrate compliance with the relevant regulations, indicating that the property is in a condition in which it can lawfully be used for its commercial purpose. Equally, those advancing finance on the security of such property, or agreeing to insure it, are likely to be influenced by the existence of such a certificate.

If those who are charged with survey and certification of such property fail to exercise proper skill and care, a number of consequences may follow:

1. The danger which the regulations are designed to guard against may result in loss of life, injury or damage to third parties.

2. The owner of the property concerned, with whom the authority is in direct relationship, may suffer pecuniary damage as a result, for instance, of being prohibited from using his property for its commercial purpose, or spending money on unnecessary modifications to it.

3. Third parties induced to purchase, hire, insure or finance the property in question may suffer prejudice.

In argument, Mr Ullstein QC for Mr and Mrs Reeman has treated it as axiomatic that, if Mr Reeman had put to sea in the vessel which had then capsized, with the consequences that he and the crew had been drowned, the widows of those who lost their lives would have had claims against the Department under the Fatal Accidents Acts. For myself I do not find this axiomatic. In Murphy v Brentwood District Council [1991] 1 AC 398, Lord Mackay at page 457 and Lord Keith at page 463 expressly left open the question of whether a local authority, which had failed to take reasonable care to ensure compliance with building bye-laws, would be legally liable in respect of injury to persons resulting from such failure.

In Philcox v Civil Aviation Authority (The Times, 8.6.95) the Court of Appeal held that the Civil Aviation Authority's statutory duty to issue certificates of airworthiness involved no duty to the owner of the aircraft to exercise reasonable care to prevent him or his aircraft suffering injury as a result of taking off in an unairworthy condition. Finally, in Marc Rich v Bishop Rock Ltd [1996] 1 AC 211 the House of Lords held that a classification society which had certified a vessel as seaworthy when she was not, owed no duty of care to the owners of cargo lost when the vessel sank and, per Lord Steyn at page 237, could not be said to be directly responsible for that loss. These decisions at least raise a serious question as to whether the Department owed any duty to Mr Reeman, or even to his crew, in respect of the risk of death or injury flowing from the unseaworthiness of the vessel.

I turn to the question of whether the Department owes any duty to owners of vessels surveyed to exercise reasonable care not to cause them pecuniary loss by imposing requirements that go beyond those justified by the regulations. Mr Ullstein submitted that it was beyond doubt that such a duty exists, but I was not persuaded that this is so. In North Cornwall District Council v Welton [1997] Administrative Law Reports 45, an environmental health officer employed to perform the statutory duties of a local authority in relation to food hygiene advised the owners of a bed and breakfast establishment that they ought to carry out expensive works which went well beyond the statutory requirements. The Court of Appeal held that, because in giving this advice he was acting beyond the scope of the local authority's statutory duties, a duty of care had arisen giving rise to liability for pecuniary loss. But the court left open the question of whether any duty of care would have arisen in respect of the performance of those statutory duties: see per Rose LJ at page 56 and Ward LJ at page 61.

Having particular regard to the fact that many aspects of the task of survey and certification involve the exercise of discretion and that the Rules make provision for a right of appeal against a refusal to issue a certificate, I consider it at least arguable that no duty of care is owed to the owner of a vessel in relation to the process of survey and certification.

The relevance of these considerations is simply that, if there is insufficient proximity of relationship to give rise to a duty of care in respect of death or injury to the skipper or crew of a certificated vessel or in respect of economic loss directly caused to the owner of the vessel at the time of the certification, it is hard to accept that such proximity exists between the Department and those who may rely on the existence of a certificate in relation to commercial transactions that involve the risk of economic loss.

I now turn to consider some particular aspects of the tests of proximity suggested by Lord Bridge and Lord Oliver in Caparo to see the extent to which the judge was correct to find them applicable to the facts of the present case.

Both Lord Bridge and Lord Oliver emphasised the importance in relation to proximity of showing that the advice has been used for the same purpose as that for which it was given. The purpose for which the advice was given proved a critical element in Caparo. The advice in question was given by auditors of a company to its shareholders in the form of a statutory audit. The shareholders relied on this advice in acquiring additional shares. The House of Lords held that no duty of care was owed to the shareholders in relation to this activity. The purpose of a statutory audit under the Companies Act 1985 was to enable shareholders to exercise their class rights in general meeting and not to inform them in relation to investment decisions.

The observation of the judge at page 61 that proximity can be established notwithstanding the fact that the purpose for which the statement is communicated differs from the purpose for which the recipient relies on it demonstrates a misunderstanding of the views of Lords Bridge and Lord Oliver on this point. The true position was clearly expressed by Lord Oliver at page 641:

"Thus Smith v Eric S Bush [1990] 1 AC 831, although establishing beyond doubt that the law may attribute an assumption of responsibility quite regardless of the expressed intentions of the adviser, provides no support for the proposition that the relationship of proximity is to be extended beyond circumstances in which advice is tendered for the purpose of the particular transaction or type of transaction and the adviser knows or ought to know that it will be relied upon by a particular person or class of persons in connection with that transaction."

In the present case the advice, if one so describes the certification, was given in the performance of the Department's statutory duties. In X (Minors) v Befordshire County Council [1995] 2 AC 633 at page 739, Lord Browne-Wilkinson, when discussing whether a common law duty of care arose in respect of the performance of statutory duties, observed:

".... the question of whether there is such a common law duty, and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done."

The statutory framework in the present case is one designed to promote safety at sea. The scheme adopted to achieve this is to impose duties as to seaworthiness on the owners of vessels and then to provide for the Department to check and certify that these duties have been complied with. The purpose of issuing certificates is not really to encourage skippers or others to rely upon them by putting to sea, or in any other manner. Somewhat paradoxically, the purpose of issuing certificates is to help to prevent fishing vessels which are uncertified, and which may be unseaworthy, from putting to sea. More broadly, one can say that the purpose of issuing certificates is the promotion of safety at sea.

Mr Ullstein argued that advice can be given for more than one purpose; that there may be a main purpose and one or more subsidiary purposes. He cited by way of example the dual purpose of issuing a survey report in relation to a house the purchase of which is to be financed by a loan secured by a mortgage: Smith v Bush [1990] 1 AC 831. I accept that there may be more than one purpose for which an advice is given. What I cannot accept is Mr Ullstein's further submission that, in the case of Fishing Vessel Certificates, a subsidiary purpose for which the certificate is issued is to inform those who may, in the future, consider entering into commercial transactions, such as purchase or charter, in relation to the certified vessels. No trace of such a purpose is to be found in the statute under which the Rules are issued, which is entitled "Fishing Vessels (Safety Provisions) Act" and which bears the preamble "an Act to make further provision for the safety of fishing vessels", nor in the Rules themselves. The protection of those whose commercial interests may foreseeably be affected by unseaworthiness of vessels forms no part of the purpose of the legislation and no part of the purpose for which Fishing Vessel Certificates are issued. So far as the purpose of the advice is concerned, the facts of this case are far more inimical to the finding of a relationship of proximity than the facts in Caparo.

The failure of the judge to appreciate the significance of the purpose of certification is evidence from this passage of his judgment at page 64:

"In my view, a prospective purchaser is in a different category from other parties such as bankers or insurers. If he purchases the vessel, he will acquire the certificate with the vessel and will be subject to the obligations of the legislation. It is he who will be subject to criminal sanctions if that legislation is disregarded. The safety and stability of the vessel have far grater consequences for the prospective purchaser than for a banker or insurer. If, like Mr Reeman, or like many prospective purchasers, he is going to skipper the vessel, then he will be himself in physical danger if the ship is unsafe or unstable. If he employs a crew he will owe legal duties to them to take reasonable steps to ensure that the vessel is safe and stable. The prospective purchaser is therefore within the protection of the legislation if he in due course becomes the owner of the vessel."

This passage confuses the role of the potential purchaser of a vessel as an investor and his role as the person responsible for the safety of the vessel once he has acquired it. While the purpose of certification is certainly directed at the latter role, it is not directed at the former.

In Caparo both Lord Bridge and Lord Oliver commented on the importance of the advice being given to an identifiable class if the necessary proximity was to exist. Those who, foreseeably, would read the audit and rely on it when making investment decision did not form such a class. In the present case the judge considered that future potential purchasers of a certified vessel formed such a class. Mr Ullstein argued that he was right to do so; that there could only be a handful of potential purchasers and there was no difficulty in identifying these.

Here again I find that the judge, and the submissions of Mr Ullstein, fail to appreciate the nature of the exercise required by Caparo. When Lord Bridge and Lord Oliver spoke of the need for the advice to be given in the knowledge that it would be communicated to an ascertainable or identifiable class of persons I believe that they were probably speaking of a class of persons the membership of which was capable of ascertainment at the time that the advice was given, eg shareholders who could be identified by consultation of the share register. I am certain that they were speaking of a class, in existence at the time of giving the advice, whose identifiable characteristics necessarily limited the number of its members. When a British Fishing Vessel Certificate is issued those who may in the future place reliance on that certificate when deciding whether to purchase the vessel do not form part of a class that is capable of definition and delimitation by identifiable characteristics. The vessel may not be sold during the currency of the certificate; she may be sold to someone in her home port or she may be advertised for sale and sold to a buyer from anywhere in the United Kingdom, or an even wider geographical area. When Mr Jones re-issued the vessel's certificate the Reemans had only just moved to Brixham. Mr Reeman was there running a building business. He had no experience of the fishing industry. There is no test which would then have indicated that he was a member of a limited class of future purchasers of the vessel, and the same is probably true of some of the other purchasers in the chain of no less than seven down which, it seems, the title to the vessel passed before it reached the Reemans. Not only did potential future purchasers not form an identifiable class when the certificate was issued, the certificate was not issued for the purpose of providing information to assist them in deciding whether or not to purchase the vessel. The Fishing Vessel Certificate was not provided in order to convey information to possible future purchasers, any more than to possible future mortgagees or insurers. It was issued as part of a scheme designed to prevent fishing vessels putting to sea when unseaworthy. Foreseeability that information may, or probably will, be relied upon by others than those for whom it is provided does not suffice to constitute such persons part of a class in a proximate relationship with those providing the information.

The absence of the two elements that I have been considering were fatal to a finding of proximity in Caparo. They are, in my judgment, equally absent in the present case.

I have identified this case as falling within a broad category under which authorities issue certificates as part of schemes designed to ensure that property is not used for commercial purposes in circumstances that may result in physical injury or damage to third parties. In holding that a duty of care is owed to persons who may suffer economic loss as a result of a reliance on such certificates the judge has made a significant extension to the ambit of the tort of negligence. I believe that a number of decided cases indicate that this is not a legitimate extension. Consideration of the cases in question falls most appropriately under the heading of the third element in Lord Bridge's test of duty in Caparo.

In Anns v Merton London Borough [1978] AC 728, the owners of leases in a block of flats found that the block was structurally unsound as a consequence of inadequate foundations. Cracks began to appear and it was found that expensive remedial works were necessary. The Council had inspected the foundations when the block was built, in the exercise of its powers under the Public Health Act 1936 but, so it was alleged, had failed to exercise reasonable care in so doing and thus failed to notice that the foundations did not comply with the relevant bye-law. A preliminary issue was raised as to whether the Council had owned a duty of care to prospective owners in respect of inspection during the building process. The House of Lords applied the test propounded by Lord Wilberforce, which I have set out earlier in this judgment. The obvious foreseeability of damage to prospective owners if the Council failed to exercise reasonable care when inspecting was held to have created a sufficient relationship of proximity to give rise to a prima facie duty of care. As to the question of whether there were any considerations which negatived this duty, Lord Wilberforce started from the premise that "On principle there must surely be a duty to exercise reasonable care" (page 755). Consideration was then given to the question of whether, as a rule of law, such a duty of care only arose in relation to the performance of a statutory duty rather than the exercise of a statutory power. The conclusion was that there was no such rule. On the assumed facts, the duty of care was held to be established.

The House of Lords in Anns treated the case as one in which the breach of duty had resulted in physical damage to the plaintiffs' property. On subsequent analysis, and subsequent analysis was not lacking, it was appreciated that in truth the damage sustained by the plaintiffs was pecuniary -- the financial consequences of acquiring property believed to be sound but whose value was substantially diminished once the existence of the structural defects became apparent.

The extension effected by Anns to the circumstances in which a claim in negligence would lie in relation to economic loss led the House of Lords to reconsider the decision in accordance with the Practice Statement on Judicial Precedent [1966] 1 WLR 1234 in Murphy v Brentwood District Council , a case of very similar fact. The House of Lords observed that the decision in Anns had far-reaching implications. It followed logically from that decision that builders of houses owed a duty to future owners of those houses, with whom they were not in contractual relationship, to take reasonable care to ensure that they did not suffer economic loss or expense as a consequence of defective construction of the houses. It was a short further step to hold that the manufacturers of chattels owed a duty to prospective purchasers to exercise reasonable care to ensure that they did not suffer economic loss as a result of finding that chattels that they had purchased were defective.

The House of Lords concluded that there was no justification for introducing into English law something in the nature of a "transmissible warranty of quality" (per Lord Keith at page 469 and per Lord Bridge at page 481). If a builder or a manufacturer of chattels owed no duty of care to avoid defects calculated to result in pecuniary loss to a subsequent owner, there could be no justification for imposing such a duty on an authority which regulated the performance of the construction or manufacture. Lord Mackay commented at page 457:

"For this House in its judicial capacity to create a large new area of responsibility on local authorities in respect of defective buildings would in my opinion not be a proper exercise of judicial power."

Lord Bridge said at page 482:

".... there may be cogent reasons of social policy for imposing liability on the authority. But the shoulders of a public authority are only 'broad enough to bear the loss' because they are financed by the public at large. It is pre-eminently for the legislature to decide whether these policy reasons should be accepted as sufficient for imposing on the public the burden of providing compensation for private financial losses."

To like effect, Lord Oliver said at page 491:

"It may be said that to hold local authorities liable in damages for failure effectively to perform their regulatory functions serves a useful social purpose by providing what is, in effect, an insurance fund from which those who are unfortunate enough to have acquired defective premises can recover part at least of the expense to which they have been put or the loss of value which they have sustained. One cannot but have sympathy with such a view although I am not sure why the burden should fall on the community at large rather than be left to be covered by private insurance. But in any event, like my noble and learned friends, I think that the achievement of beneficial social purposes by the creation of entirely new liabilities is a matter which properly falls within the province of the legislature."

In my judgment much of this reasoning is applicable to the facts of the present case. Although Mr Ullstein has sought to restrict the duty of care for which he contends to the narrow facts of the present case, it seems to me that if the duty exists, it ought logically to exist in respect of the wide range of analogous cases where authorities certify that property complies with safety requirements. Certainly it ought to apply to all certifications of the Department of Transport or its agencies, under the provisions of the Merchant Shipping Acts. In Murphy Lord Oliver at page 488 remarked that it was impossible to see on what principle someone who had come into possession of a yacht could recover from the builders loss attributable to the cost of repairing a defect which rendered the yacht dangerous to use. The builders of fishing vessels, or merchant ships, are not liable to subsequent purchasers in relation to the costs of remedying defects attributable to lack of care in construction. There is no obvious reason why the Department of Transport's duty to regulate the seaworthiness of British vessels should impose a greater duty of care than that borne by those who build the vessels. Were such a duty to exist, the cost of it would have to be borne by the public, or in the form of increased survey fees, rather than by those concerned in the relevant commercial transactions.

Mr Ullstein submitted that justice required the existence of a duty of care in the present case, because no alternative avenue of redress was open to Mr and Mrs Reeman. In this, he submitted, the present case resembled White v Jones . I do not find the comparison valid. White v Jones involved the question of whether a solicitor who was instructed to draw up a will owed a duty of care in tort to the proposed beneficiaries under it. In such a situation, were a duty of care not owed, no alternative remedy would ever be available to the beneficiaries. In a case such as the present, however, it will always be open to a party entering into a commercial transaction in relation to a certificated vessel to take steps, such as surveying the vessel or stipulating for contractual warranties, that will provide protection against the risk that the certificate does not reflect the true condition of the vessel.

Finally under this head I should refer to two decisions which Mr Aikens submitted bore closely on the issues in the present case. In "The Morning Watch" [1990] 1 Lloyd's Rep 547, the plaintiffs, who had purchased a yacht in reliance on the fact that she had just passed her Special Survey, sought to establish that Lloyd's, the classification society which had carried out the survey, owed them a duty of care. In Marc Rich v Bishop Rock owners of cargo lost when a ship sank sought to establish that they had been owed a duty of care by NKK, the classification society which had carelessly surveyed damage sustained by the vessel and permitted her to sail in unseaworthy condition. In each case the court held that the duty of care was not established. In each case the court attached importance to the fact that classification societies are non-profit-making organisations which exist for the purpose of furthering safety at sea rather than for the protection of commercial interests. Mr Aikens submitted that the Department of Transport, when performing its regulatory functions under the Merchant Shipping Acts, performs a very similar role and, indeed, often delegates to classification societies the performance of some of its duties. In my judgment this point has force. It reinforces my conclusion that, for the reasons that I have given, to impose on the Department of Transport the duty for which Mr Ullstein contends would be neither fair, just nor reasonable. It follows that neither of the last two limbs of Lord Bridge's test in Caparo is satisfied. The judge erred in finding that the Department had owed a duty of care to Mr and Mrs Reeman.

It does not follow from the conclusion that I have just expressed that I am content with the result that follows in this case. Mr and Mrs Reeman have suffered a financial disaster which is none of their making and which would not have occurred had the Department exercised proper care in the manner in which it carried out its statutory duties. I can well understand their feeling that the law should provide them with some redress. Unhappily the certainty that the law requires sometimes precludes the court from reaching the result that it would prefer on the facts of the individual case.

For the reasons that I have given I would allow this appeal.

LORD JUSTICE PETER GIBSON: I agree, but I add a few words of my own, differing as we are from the judge to whose clear and comprehensive judgment, in a case which he acknowledged he found of very great difficulty, I also would pay tribute.

The plaintiffs claim damages for negligence in respect of pure economic loss: the purchase price of the vessel now said to have only scrap value, and the fishing profits lost through the vessel being unfit to go to sea. I have considerable sympathy with the plaintiffs in the financial plight in which they now find themselves. But their claim raises a question of law of potential general importance in that, if it is answered in the way they suggest, the result would be a significant extension of the scope of the law of negligence. Such an extension cannot, in my judgment, be justified in the light of existing authorities binding on this court.

It can readily be seen that negligence causing loss not connected with nor flowing from physical damage to property or person gives rise to problems of scope. As Lord Oliver said in Caparo plc v Dickman [1990] 2 AC 605, at pages 632-633:

"The opportunities for the infliction of pecuniary loss from the imperfect performance of everyday tasks upon the proper performance of which people rely for regulating their affairs are illimitable and the effects are far reaching. A defective bottle of ginger beer may injure a single consumer but the damage stops there. A single statement may be repeated endlessly with or without the permission of its author and may be relied upon in a different way by many different people. Thus the postulate of a simple duty to avoid any harm that is, with hindsight, reasonably capable of being foreseen becomes untenable without the imposition of some intelligible limits to keep the law of negligence within the bounds of common sense and practicality."

Lord Oliver went on to point out that those limits had been found by the requirement of proximity between the plaintiff and the defendant and by the further related requirement that it must be fair, just and reasonable to impose liability on the defendant for the harm that has occurred to the plaintiff. It is therefore clear that the policy of the law does not permit every financial loss to a plaintiff flowing from the negligence of a defendant to be recoverable.

In determining whether a duty of care arose, the judge applied the three criteria suggested in cases such as Caparo of foreseeability (with which we are not concerned on this appeal), proximity and fairness. However, Mr Ullstein also argues that the alternative test of assumption of responsibility, which was applied in cases such as Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, was also satisfied. For my part, I have some difficulty in seeing how that can be the appropriate test in a case such as the present where there is no contract between the plaintiffs and the Department, nor a situation the equivalent of contract, particularly if the adjective 'voluntary' is applied to 'assumption' as it sometimes is, given that the Department was acting under a statutory duty imposed upon it. I have even greater difficulty in seeing how the Department could be said to have assumed responsibility to the plaintiffs by issuing the certificates when the Department in 1977 and 1986 was at the request of the owner of the vessel performing that statutory duty and could not have known who, whether corporations or individuals during the currency of the certificate, might become the successors in title to that owner. The circumstances of the present case are wholly different from those, for example, of the managing agents providing services for the identified names in the Henderson case or the solicitor drafting a will under which identified beneficiaries were intended to take in White v Jones [1995] 2 AC 207, in which cases the defendants were found to have assumed responsibility to the plaintiffs.

In finding the requisite proximity between the plaintiffs and the Department, the judge in my view placed too much reliance on factors which went only to foreseeability. The factual assumptions which were made on the preliminary issue in the Caparo case (ibid, page 629F-H) and which related to foreseeability did not determine the cognate but different question of proximity. So here knowledge by the Department that the certificate and the statement in it would be communicated to a prospective purchaser specifically in connection with a transaction of a particular kind, viz a purchase, and that a prospective purchaser such as the plaintiffs would be very likely to rely on the statement for the purposes of deciding whether or not to enter upon the purchase of the vessel should not have led the judge to conclude that proximity was established. I accept the submission of Mr Aikens QC for the Department that the judge failed to have sufficiently in mind the closeness and directness of the relationship which Lord Atkin in Donoghue v Stevenson [1932] AC 562 at 581 (cited by Lord Oliver in Caparo at page 632) thought essential. Lord Atkin referred to "such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act". I do not accept that the plaintiffs were members of "an identifiable class" (to use Lord Bridge's words in Caparo at page 621), to whom the Department knew that that its statement in the certificate would be communicated. Lord Bridge indicated what he meant when he quoted with approval the words of Denning LJ in Candler v Crane, Christmas & Co [1951] 2 KB 164 at pages 180-181:

"Secondly, to whom do these professional people owe this duty? I will take accountants, but the same reasoning applies to the others. They owe the duty, of course, to their employer or client and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer without their knowledge may choose to show their accounts. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent. .... The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him?"

In my judgment the members of the identifiable class must be capable of identification at the time of the making of the negligent statement. It is not sufficient that the plaintiffs should be members of a generic class capable of description at that time, whether as potential purchasers or successors in title of the owner who asks for the certificate. That would be to create a potential liability to an open-ended class and I observe that in Smith v Bush [1990] 1 AC 831, at page 865, Lord Griffiths, in finding that a duty of care was owed by a prospective mortgagee's valuer to the prospective mortgagor, limited to that prospective mortgagor the extent of the liability and was not prepared to extend liability to protect subsequent purchasers.

For the reasons given by Phillips LJ it is also to my mind plain that the purpose for which the certificate was given and the purpose for which the plaintiffs used it do not coincide. I find helpful the decision of Phillips LJ who, at first instance in "The Morning Watch" [1990] 1 Lloyd's Rep 547, held that a classification society surveying a vessel did not owe a duty of care to potential purchasers of the vessel such as to make the society liable in damages to them for economic loss, the proximity requirement not being satisfied. The judge, in distinguishing that decision, pointed out that there was a factual distinction between that case and the present in that in "The Morning Watch" there was no overwhelming or other probability that whoever purchased the vessel would do so on the strength of the fact that the vessel had passed the society's survey. But in my judgment that is not a sufficient ground of distinction. The other factors which weighed with Phillips LJ in reaching that decision, such as that no particular purchaser was in contemplation at the time of the survey, apply to the present case. I therefore conclude that the judge was wrong to find the criterion of proximity satisfied.

That conclusion would be sufficient to determine the appeal. But for the reasons given by Phillips LJ I am also of the view that it would not be fair, just and reasonable to impose a duty of care on a body like the Department charged with the duty of certifying with a view to promoting safety at sea. The analogy with classification societies like that in Marc Rich & Co v Bishop Rock Marine Co Ltd [1996] AC 211 seems to me clear and compelling.

For these reasons, as well as those given by Phillips LJ, I too would allow this appeal.

THE LORD CHIEF JUSTICE: The broad thrust of the Reemans' case in this action is very simple. They spent a large sum of money to buy a working fishing vessel. The vessel held a certificate issued by the Department which entitled her to go to sea and fish. Without the certificate the vessel could not have gone to sea and fished. She would therefore have been worth much less; but she would have been no use to the Reemans and they would not have bought her. After the Reemans had bought and paid for the vessel it came to light that the surveyor who had issued and reissued the Department's certificate had made a mistake. He had miscalculated the figures. He had certified that the vessel met the Department's stability test when in truth she did not. So no renewal of the certificate was forthcoming. The vessel could not longer go to sea and fish. Her value plummeted. She was useless, unless structural alterations were made which the Reemans could not afford. The Department accept that their surveyor was careless. They accept that the financial consequences of his carelessness, as they affected the Reemans, were foreseeable. Not surprisingly, the Reemans feel that they have been ruined by the carelessness of the Department's surveyor. They ask to be compensated.

Unfortunately for them, their claim for compensation is what the law categorises as a claim for financial loss caused by negligent mis-statement. This is a kind of claim which it is very hard for a plaintiff to establish, even where the making of a negligent mis-statement and the financial loss caused by it are not in doubt. The leading cases to which Phillips LJ has referred lay down the principles which we are bound to apply; and the other cases show how these principles have in practice been applied in different factual contexts. For better or worse, we cannot approach this case as if the issues were raised for decision for the first time.

The cases show that before a plaintiff can recover compensation for financial loss caused by negligent mis-statement his claim must meet a number of conditions. Among these are three particularly relevant here. The statement (whether in the form of advice, an expression of opinion, a certificate or a factual statement) must be plaintiff-specific: that is, it must be given to the actual plaintiff or to a member of a group, identifiable at the time the statement is made, to which the actual plaintiff belongs. Secondly, the statement must be purpose-specific: the statement must be made for the very purpose for which the actual plaintiff has used it. Thirdly, and perhaps overlapping with the second condition, the statement must be transaction-specific: the statement must be made with reference to the very transaction into which the plaintiff has entered in reliance on it. If these conditions are met, it is necessary to turn to other conditions which the plaintiff must satisfy.

But it seems to me inescapable that the Reemans cannot meet these three conditions. When the certificate was issued and reissued they were in no way involved; nor did they form part of any then identifiable group to whom the certificate was issued. The purpose of the certificate (and the tests which preceded, or should have preceded, it) was to safeguard the physical safety of the vessel and her crew; it was not directed in any way to the market value of the vessel. When the certificate was issued and reissued, no sale to the Reemans was in the offing; the certificate was not issued with reference to that transaction. We cannot regard the Department's certificate as if it were a bill of exchange of which the Reemans became the holders in due course, because we are concerned with the law of tort which does not regard certificates as negotiable instruments.

For these reasons and those given more fully by my Lords I agree that this claim against the Department must fail, and that the learned judge (to whose clear and careful judgment we are indebted) was wrong to hold otherwise. I would accordingly allow the Department's appeal.

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