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Principle of Precedent:
The Heart of Common Law System


Using "precedents" or past solutions is a common technique, in business as in all common law legal systems. Some precedent law decisions are binding. Judges' decisions bind later courts of equal or lower rank, providing the facts are materially the same. English judge, Baron Parke, articulated this theory of bindingness or stare decisis, in 1833:

"Our Common Law system consists in the applying to new combinations of circumstances those rules of law which we derive from legal principles and judicial precedents; and for the sake of attaining uniformity, consistency, and certainty, we must apply those rules, where they are not plainly unreasonable and inconvenient, to all cases which arise..."

In theory, courts must follow a binding precedent. Or they must "distinguish" it, that is, point out its differences. The ease with which judges can distinguish, and hence avoid, previous decisions leads critics to argue that the system of precedent is a fiction and that courts follow policy not principle. Some legal authors agree that the doctrine is "full of complexities and, in some areas, uncertainty".

Disadvantages of the doctrine of precedent

1. Law too unwieldy and bulky?

The sheer volume of precedents means log jams in the law. The quantity of legislation is also exploding.

2. Excessive rigidity?

Idealising decisions of the past perpetuates illogical distinctions and poor law. "A weakness of case law is that it runs the risk of stagnation, particularly when it has excessive regard for its own precedents", argues Professor RC Van Caenegem. Mistakes made at the top of a binding hierarchy are perpetuated.

3. Illogical distinctions?

Poor precedents force the courts to make false distinctions between cases. Such technicality brings the law into disrepute.

4. Not up-to-date?

The common law relies on litigation, not on measured legislation, to remain up to date.

Advantages of the doctrine of precedent

1. Consistency and certainty

Citizens can plan their behaviour to fit with certain and predictable law. Lord Mansfield praised certainty, "because speculators in trade then know which ground to go upon." The French Civil Code was to protect French citizens against the biases of the courts of the Old Regime. The chaos and fear within Germany, before and during the 1939-1945 war, was in part attributable to the loss of consistency and certainty of the law.

2. Flexibility

Precedents provide analogies for every conceivable situation. The flexibility of the doctrines of ratio decidendi and distinguishing allow courts to adjust the law incrementally to meet the needs of justice.

3. Logical evolution

One case builds upon the other. The law develops logically, where it is needed. It develops through real cases rather than theories. Gifted judges may tilt and adjust the law. Other jurists encourage or censure these adjustments by following them or not. And so the common law evolves.

Ratio Decidendi and Obiter Dicum

Some of the legal rules formulated in a case are binding, others are more or less persuasive, and some may be of very little significance or not binding. The core and binding part of a law decision is its ratio decidendi - meaning reasons for deciding, or central principle. It is what the case stands for, therefore should be followed by a later court.

Identifying Ratio in a Case

In its very simplest form, the ratio of a case is the judge's decision on the issue raised by the facts. In many cases, primarily those at first instance, the court is required to do is to determine the facts - no legal principles are in issue. In many other cases the relevant legal principles have long been determined, so that once the facts have been established the application of the principles is straightforward. For instance, the principle that one way to create a contract is by agreement (offer and acceptance) with consideration and the intention to create legal relations is one such well-established rule. If the facts show that there are (1) an offer; (2) an acceptance; (3) consideration and (4) intention to create legal relations, there is an enforceable contract between the parties involved.

Neither of these sorts of cases will set a precedent to be followed in later cases (the one, because it relates only to a set of facts and not to law, the other because the law is well settled). Neither, therefore, has a ratio which will be employed in later cases. It is in cases in which the facts do raise a novel or new legal issue that the judge's decision becomes a ratio which has to be regarded as a precedent with binding force.

Consider, for example, the case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256. In that case it was established that the company had advertised a product known as a 'smoke ball' which was supposed to prevent those who used it from catching influenza. In the advertisement, the Company promised compensation to anyone who used the smoke ball correctly but unsuccessfully. Mrs Carlill was an unsuccessful purchaser of the smoke ball and she sought her 'reward' (as the company described it in the advertisement). When the company refused to pay she sued, alleging a breach of contract.

The transaction had to be analysed by the court to see whether it conformed to existing principles of contract law and whether, therefore, the company's promise could be enforced. Lindley LJ (the judge of this case) stated that there was 'a string of authorities' confirming that advertisements offering rewards for performance of a condition are correctly characterised as 'offers' in the technical legal sense.

Two legal issues remained to be decided as no previous decision had dealt with a similar set of facts. The two issues were: (1) whether there had been the necessary acceptance of the company's offer and (2) whether there had been consideration for its promise. Lindley LJ's decision on each issue was as follows.

  • The plaintiff's notification that she had used the smoke ball in accordance with the directions and had subsequently contracted influenza was also her acceptance of the company's offer. Lindley LJ came to this conclusion by following the precedent of Brogden v Metropolitan Railway Co (1877) 2 App Cas 666, even though it dealt with very different facts from those in this case.
  • The plaintiff's use of the smoke ball as directed was good consideration for the company's promise. Lindley LJ reached this conclusion not by expressly following any precedent, but by deciding that the use of the smoke ball three times a day for two weeks was a distinct inconvenience, not to say a detriment.

Each of these decisions is a ratio of the case and is, therefore, an authoritative statement of that principle of law for application in later, similar, cases.

Level of Generality

The way in which the rule of law is stated by the judge may not, however, be the rule accepted as the ratio by later courts. For any principle of law from one case to be applicable in later cases which are not identical, it will almost certainly have to be stated at a level of greater generality.

The ratio from Carlill's case, given above, are there stated at the lowest level of generality. They can be restated at a higher level of generality in the following manner:

  • in cases of unilateral offer, the offeree's performance of the condition constitutes acceptance of the offer; and
  • in cases of unilateral offer, performance of the condition is good consideration for the offeror's promise.

The restatement of these rules at a higher level of generality allows each of them to encompass a wider range of cases and so to have greater value as a precedent. This sort of restatement is necessary in order for the doctrine of precedent to be useful. If the statements are taken as the authoritative principles of Carlill's case then it will not be necessary for judges in later, similar, cases to work out the correct decision from first principles. Had the ratio remained fixed at the lowest level of generality, forever confined to the particular facts of the case, they would have value only if a dispute later arose on almost identical facts.

There does eventually come a point, with all principles of law, where they can no longer be raised to a higher level of generality while at the same time remaining acceptable to society in general and to the courts in particular. Over the years the courts will have to deal with cases which are on the very edge of the scope of the principle and to decide whether or not the rule is applicable. Gradually, in this way, the parameters within which the rule is to operate will become set and there will no longer be a need for people to resort to litigation to determine the effect of that particular principle although it may always be challenged.

Example of a principle expanding: Donoghue v Stevenson

Donoghue v Stevenson offers the best example of an expanding principle of the common law.Manufacturers of ginger-beer had left a snail in a bottle. A woman drank most of the ginger-beer, discovered the snail's remains and became ill. As she pleaded: "In consequence of the nauseating sight of the snail and in said circumstances, and of the noxious condition of the said snail-tainted ginger-beer consumed by her, she sustained the shock and illness hereinafter condescended on." Formerly, she would have had no claim. There had been no contract of purchase between the lady and the manufacturer of the ginger-beer (only between the lady and the cafe owner who sold her the ginger-beer). The common law contained no duty, outside contract law, to "take care of your neighbour" when you were, for example, baking bread, making a shampoo or brewing a soft drink.

Mrs Donoghue never won any damages. The House of Lords was concerned only about whether there was a cause of action in such circumstances. MacKinnon LJ, in a public lecture in 1942, said; "To be frank, I hate that snail ... when the law had been settled by the House of Lords, the case went back to Edinburgh to be tried on the facts. And at that trial it was found that there never was a snail in the bottle at all!" The defendant manufacturer died soon after the trial and, although the cafe owner had been added as defendant, the case against him was dropped.

Lord Atkin and two other law lords (of five) found that the manufacturers of the ginger-beer could indeed be liable. They held that we have a duty of care to our neighbours. We do not owe duties only to those we enter contracts with.

And who are our "neighbours"? Replied Lord Atkin:

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.

A maker of ginger beer ought reasonably to have in mind, and thus is a "neighbour" to, a consumer of his soft drink.

Some thought this case should be confined to manufacturers of defective products. And that it should only apply to acts which were negligent, not to statements. But it did extend - much further.

Hedley Byrne v Heller was one extension. Merchant bankers advised the plaintiffs that a certain customer was credit worthy. The plaintiffs extended him credit of 17,000 pounds. The customer proved not to be credit worthy and the money was lost. The plaintiffs sued, alleging that the merchant bankers were negligent in their report.

The House of Lords found that you could be liable for negligent statements, providing (a) you knew they were going to be acted upon by someone, and (b) they were acted upon to that person's detriment: "if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise."

Another major development came in Dorset Yacht Co Ltd v Home Office. Seven Borstal boys escaped from a camp, climbed aboard a yacht, set the yacht adrift and caused damage to it. The officers in charge had left the Borstal boys unsupervised. The House of Lords (4 to 1) found the Home Office liable in negligence.

The authorities have a duty to control the inmates and keep them under reasonable supervision. "The prison authorities are only negligent if, within that system, they do not take such care and supervision as a reasonable person, operating such a system, would take."

Those in public authority positions now knew that, because of the developing principles from Donoghue v Stevenson, Hedley Byrne and Dorset Yacht, they must exercise care, because they know, or ought to know, that others reasonably rely on their expertise.

Professional persons owe a duty of care, not just to their clients, but to others who are reasonably relying on their skill. An accountant, a stockbroker, an auditor or a banker owes such a duty. Reliance is at the core of this duty relationship.

Builders and council inspectors of building sites can also carry this general duty of care, where the plaintiffs have reasonably relied on them. In 1996, in Invercargill City Council v Hamlin, the Privy Council held that a local authority was liable to a house owner. Its building inspector had been negligent in approving inadequate foundations for the house. The loss was not just the physical damage to the foundations. It also included economic loss - that is, the fall in the value of the house once the defect was discovered.

Similar economic loss was compensated for in Bryan v Maloney. A builder constructed a house with inadequate footings. The ultimate purchaser (the house had been sold twice) suffered financial loss because of the faulty construction. The builder owed the ultimate purchaser a duty to exercise reasonable care to avoid causing this financial loss.

The tort of negligence and its principle of liability based on fault is now far-reaching. It can be applied to practically any area of human activity. As we shall see, it has even eaten up other areas of tortious liability. The principle in Donoghue v Stevenson has come a long way. The common law method has nurtured and developed important principles of the law of torts.

Example of a principle narrowing: Rylands v Fletcher

If judges wish to restrict the development of some particular principle, they will narrow the ratio (reduce its level of generality). We have a good example of this. One case flowered, then wilted, and finally was crowded out by another more flourishing principle.

In Rylands v Fletcher, the defendants built a reservoir on their land to store water for their mill. They filled the reservoir with water. The water broke through into some mining shafts beneath, escaped, and flooded their neighbour's mine. Even though they were not personally negligent (they had hired engineers), the defendant mill owners were liable for the damage caused by the escaping water. This sort of liability is called strict liability - you are liable, even if you are not at fault.

How did this new principle of law fare?

For a while it flourished. Seventy years later came Hale v Jennings Brothers. The defendants owned a chair-o-plane, erected at a fair ground. A man jumped around on a chair as it rotated. The chair flew off and struck the unfortunate plaintiff, who was at a nearby stand. The owners of the chair-o-plane were liable for the damage, even though they had not been negligent.

The material facts are similar to those in Rylands v Fletcher. The only major difference was that the damage was to a person, and not just to property. So Hale v Jennings Bros saw an expansion of the rule in Rylands v Fletcher to include personal injury.

In Read v Lyons the House of Lords braked the development of Rylands v Fletcher. There was an explosion (no negligence was alleged) at a munitions factory. The plaintiff was injured. However, she could not recover under the principle in Rylands v Fletcher, because she was held to be not a neighbouring occupier. Nothing had escaped beyond the defendant's land, as she had been in the premises with the dangerous substance. The decision is thought unfair because someone injured outside the premises was able to claim, but not those inside.

Rylands v Fletcher liability has applied in cases involving the "escape" of water, fire, oil, explosives, falling chimney stacks and even a storm-tossed roof of a house.

Rylands v Fletcher had developed at a time when the Donoghue v Stevenson principles of negligence were only embryonic. Rylands v Fletcher's popularity was helped by an underlying belief that enterprises should pay for damage they cause, because they are better placed to pay. They can also insure against such risks better than the victims. Generally, though, the courts did not like strict liability. They thought you should be liable only when you were to blame or at fault.

Rylands v Fletcher was finally cut down by the Australian High Court in Burnie Port Authority v General Jones Pty Ltd. A contractor was welding next to cardboard cartons containing flammable material. Sparks fell into the cartons and caused a fire. The fire escaped to another area of the building occupied by someone else. Damage was caused to frozen vegetables. Was this a classic Rylands v Fletcher situation?

The High Court ruled there was a duty of care owed to this neighbouring person. The contractor had not taken reasonable care to prevent fire from the welding sparks. So the law of negligence, evolving from Donoghue v Stevenson, applied.

But what about the second line of argument - did Rylands v Fletcher's strict liability principle apply, too? The High Court said no. It reasoned that, under common law, the special rule in Rylands v Fletcher has been taken up by, or absorbed into, the principles of the tort of negligence. The High Court also emphasised uncertainties in the doctrine of Rylands v Fletcher. They should not exist where you had a doctrine such as strict liability.

In sum, then, the potentially harsh rule of Rylands v Fletcher has been swallowed up into the more general doctrine of negligence. An occupier can be liable for the escape of mischievous things now only in negligence. The common law has evolved. Rylands v Fletcher's rule has gone. McHugh J commented:

The rule in Rylands v Fletcher, like other common law rules, has undergone much exposition and development since it was first formulated ... The genius of the common law is that the first statement of a common law rule or principle is not its final statement. Rules and principles are modified and expanded by the pressure of changing social conditions and the experience of their practical application in the life of the community.

Professor Jan McDonald regrets the demise of the principle, pointing out that Rylands v Fletcher has been useful in pollution control. McHugh J had agreed:

In an age where the escape of fire, oil, gases, chemicals and even radioactive materials has often caused widespread damage, it is not readily apparent why the common law should now abandon the prima facie rule of strict liability established in Rylands v Fletcher for the indeterminacy of the action for negligence.

Obiter dictum

A judge will often find it necessary or convenient to state principles of law which relate to hypothetical events rather than to the specific facts of the case. Such statements sometimes serve to illustrate or clarify the principle which is actually applied in the case (the ratio) but they are not themselves rationes. Any such statement of a rule of law is called an obiter dictum (plural, obiter dicta). Obiter dicta expressed by eminent judges in superior courts are often very weighty persuasive authority for judges deciding later cases but, according to the doctrine of precedent, they will never be binding. The distinction between ratio and obiter, therefore, can be stated thus: pronouncements of legal principle necessary for the judge's decision on the established facts of the case are the ratio decidendi of the case, whereas pronouncements of legal principle which are not strictly relevant to the issue or issues will be obiter dicta only.

Therefore, it must be appreciated, however, that not every statement of a rule of law by a judge is necessarily ratio or obiter. Frequently, during the course of the judgment the judge will restate and discuss rationes from existing cases. That is simply a recitation of the relevant legal principles - a foundation for the judge's reasoning - but those statements are neither ratio nor obiter in the case before the court. Sometimes it is hard to distinguish between statements which are ratio or obiter and those which are restatements of principles in earlier, slightly different cases. How do you know obiter when you see it? It has some characteristics:

  1. Obiter dicta are statements of law.
  2. They include a judge's opinion on some point of law that is not necessary to the decision in the case.
  3. They are not part of the ratio.
  4. They can also be analogies, or illustrations, or points of contrast, or conclusions based on hypothetical facts.

Obiter is not binding on future courts, even on lower courts. It can be persuasive. Its weight depends on the circumstances: who made it, the degree of deliberation, the eminence of the court, the wisdom of the jurist, the age of the judgment.

Example of obiter comment:

Lord Denning's obiter in Central London Property Trust v High Trees House Ltd (the High Trees Case) was weighty and very persuasive. Actually, it helped establish promissory estoppel in the common law. In the case, Central London leased a block a flats to High Trees, at an annual rental of $500 in 1939. Due to the outbreak of war, High Trees had difficulty in filling the flats and, accordingly, in 1940 the parties agreed in writing that the rental would be reduced by half. The parties did not, however, stipulate the period for which this reduced rental was to apply.

High Trees paid the rent at the reduced rate for five years and in 1945, the flats began to fill again. In fact, by the second half of 1945, the flats were full and Central London sued for payment of the full rental in respect of this period.

It was held (King's Bench Division):

  1. that the 1940 agreement was intended to accommodate the peculiar circumstances brought about by war and was therefore valid only for the duration of the war.
  2. that since the flats had filled again in the second half of 1945 (after the war had ended), the 1940 agreement no longer applied and Central London was entitled to the full rental for that period.

However, by way of important obiter dicta, Denning J said that had Central London sued for the arrears for the years 1940-45, it would have failed. It would have been estopped from going back on its promise [as set out in the 1940 agreement] to accept a reduction in rental, even though that promise had not been supported by any consideration from High Trees because to hold otherwise would have been unjust.

Is it ratio or obiter?

When in doubt, how do you tell if you have the ratio decidendi or an obiter comment? One way is to state the opposite of the statement of law you think is obiter. If this would still leave the decision in the case the same, then the statement is obiter, not ratio.

Practice: Identifying ratio and obiter

Analyse the judgment of McCardie J in Cohen v Sellar [1926] 1 KB 536 and give the following information.

  1. Citation.
  2. Brief statement of the material facts.
  3. Procedural history and issues to be decided.
  4. Reason(s) for decision including the passage(s) in the judgment:
    • which could be argued to be ratio decidendi; or
    • which could be argued to be obiter dicta.

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