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Elements of malicious prosecution

criminal , law

Introduction
Definition
Is the institution of unsuccessful criminal or bankruptcy or liquidation proceedings against another without reasonable or probable cause.  Alternatively, malicious prosecution may refer to institution of unsuccessful criminal proceeding maliciously and without reasonable and probable cause. When such prosecution cause such damage to the party prosecuted it is a tort for which he can bring an action. 
Malicious prosecution is an abuse of the process of the court by wrongfully setting the law in motion on a criminal charge.

This tort balances competing principles, namely freedom that every person should have in bringing criminals to justice and the need for restraining false accusations against innocent persons.
The foundation lies in the triangular abuse of the court process of the court by wrongfully setting the law in motion and it is designed to encourage the perversion of the machinery of justice for a proper cause the tort of malicious position provides redress for those who are prosecuted without cause and with malice.  In order to succeed the plaintiff must prove that there was a prosecution without reasonable and just cause, initiated by malice and the case was resolved in the plaintiff’s favor. It is necessary to prove that damage was suffered as a result of the prosecution.

COMMENCEMENT OF MALICIOUS PROSECUTION

The Prosecution is not deemed to have commenced before a person is summoned to answer a complaint.
In Khagendra Nath v. Jacob Chandra, there was mere lodging of ejahar alleging that the plaintiff wrongfully took away the bullock cart belonging to the defendant and requested that something should be done. The plaintiff was neither arrested nor prosecuted.
It was held that merely bringing the matter before the executive authority did not amount to prosecution and therefore the action for malicious prosecution could not be maintained. There is no commencement of the prosecution when a magistrate issues only a notice and not summons to the accused on receiving a complaint of defamation and subsequently dismissed it after hearing both the parties.

ELEMENTS OF MALICIOUS PROSECUTION
The tort of malicious prosecution provides redress for those who are prosecuted without cause and with malice. In order for the tort of malicious prosecution to succeed the plaintiff must prove that there was a prosecution without reasonable and just cause, initiated by malice, and the case was resolved in the plaintiff’s favor. It is necessary to prove that damage was suffered as a result of the prosecution. 

 In an action of malicious prosecution the plaintiff must prove: -
 1) That the plaintiff was prosecuted by the defendant
 There must have been a prosecution initiated by the defendant. The word ‘prosecution’ means a proceeding in a court of law charging a person with a crime. To prosecute is to set the law in motion and the law is set in motion only by an appeal to some person clothed. The person to be sued is the person who was ‘actively instrumental in putting the law in force. There was a conflict on the question whether there is prosecution of a person before process is issued calling upon him to defend himself. One view was that a prosecution began only when process was issued and there could be no action when a magistrate dismissed a complaint under section 203 of the code of criminal procedure. The other view was that a prosecution commenced as soon as a charge was made before the court and before process was issued to the accused.

The proper test was indicated by the privy council in the Mohammad Amin v. Jogendra Kumar Bannerjee. The defendant had filed a complaint before the magistrate charging the plaintiff with cheating. The magistrate thereupon examined the complainant an oath and made an inquiry under s 202 of the code of criminal procedure. Notice of the inquiry had been issued to the plaintiff who attended it with his counsel and incurred costs doing so. The magistrate finally dismissed the complaint under section 203 of the code. 

In these circumstances the Privy Council held that there was a prosecution. The test is not whether the criminal proceedings have reached a stage at which they may be described as a prosecution, the test is whether such proceedings have reached a stage at which damage to the plaintiff results. A mere presentation of complaint to a magistrate who dismissed it on the ground that is disclosed no offence may not be sufficient ground for presuming that damage was a necessary consequence. It will be for the plaintiff to prove that damage actually resulted.
 In the case of Martin v. Watson, the House of Lords held that it is not necessary that defendant should be the prosecutor in any technical sense. What matters that he should in substance be the person responsible for the prosecution being brought. In this case the defendant made various charges to the police that the claimant had indecently exposed himself to her and this led to the prosecution of the claimant at which no evidence was offered against him.
 In another case Yohana s/o Miyuni v. Isaya s/o Bakobi , The plaintiff sued the defendant for spoiling his reputation, maliciously imprisoning him and uprooting his crops. The parties were neighbor and had numerous disputes over the right of each in relation to the hand of the other. In the cause of one dispute the defendant made a report to the police that the plaintiff had threatened him and the plaintiff was arrested and remanded for two days. The criminal proceeding was terminated on the plaintiff’s favor.

 2) That the proceeding complained was terminated in favour of the plaintiff
 The plaintiff must prove that the prosecution ended in his favour. He has no right to sue before it is terminated and while it is pending. The termination may be by an acquittal on the merits and a finding of his innocence or by a dismissal of the complaint for technical defects or for non-prosecution.  If however he is convicted he has no right to sue and will not be allowed to show that he was innocent and wrongly convicted. His only remedy in that case is to appeal against the conviction. If the appeal results in his favour then he can sue for malicious prosecution. It is unnecessary for the plaintiff to prove his innocence as a separate issue.
 In the case of Festo v. Mwakabana, the appellant having a dispute over ownership of land with his neighbour, harvested maize growing on the land. The respondent preferred a criminal complaint against the former. The appellant was tried and convicted by the trial magistrate but acquitted on appeal. The judge observed that it could not be disputed that so far as plaintiff was concerned the criminal proceedings had been terminated in his favour thereby satisfying. The essential requisite condition for bringing an action for malicious prosecution.  in the case of Reynolds v. kennedy, it was held that no action would lie of the claimant had been convicted even if his conviction was later reversed on appeal. The reasons apparently being that the original conviction showed conclusively that there was foundation for the prosecution. However, this is no longer be regarded as good law.

3) That the prosecution was instituted against without any just or reasonable cause.
‘Reasonable and probable cause was defined in the case of Hicks v. Faulkner  as “an honest belief in the guilt of the accused based on a full conviction founded upon reasonable grounds, of the existence of a circumstances, which assuming them to be true, would reasonably lead any ordinary prudent man and cautious man placed in the position of the accuser to the conclusion that the person charged was probably guilty of the crime imputed”. In the case of Satyakam v. Dallu the defendant, an illiterate, engaged the plaintiff, as his advocate in a dispute of his landed property. After the decision of this case, there was another dispute of some other property of the defendant and the plaintiff took up the case of the opposite party. The defendant object to the conduct of the plaintiff and filed to a complaint in the Bar council of India alleging professional misconduct. The Bar council gave the benefit of doubt to the plaintiff and dismissed the complaint. There after the plaintiff filed a suit for malicious prosecution against the defendant. The court observed that because of similarity between the two litigation and also high traditions of the legal professional, the plaintiff should not have accepted the case against the old client.  Since there was reasonable cause and no Malice on the part of the defendant, it was not the case of malicious prosecution. 

 4) The defendant acted maliciously
 For the purpose of malicious prosecution, malice means having any other motive apart from that of bringing an offender to justice. Thus is the presence of some other and improper motive that is to say the legal process in question for some other than its legally appointed and appropriate purpose.  In the case of Allen v. Flood, a general rule was propounded that an act lawful in itself does not merely become unlawful because of the bad motives of the actor and some of them lordships in the House of Lords suggested that Malicious prosecution was not really an exception to this rule.  The settled rule is that Malice is the gist of the action for malicious prosecution and must be proved by the plaintiff in the first instance. It is for the plaintiff to prove that there was an existence of Malice that is to say the Burden of proof lies upon the plaintiff. . Anger and revenge may be proper motives if channeled into the criminal justice system.  The lack of objective and reasonable cause is not an evidence of malice but lack of honest belief is an evidence of malice.
In Peter Ng’homango v. Gerson M.K Mwanga .The court of  appeal established malice when it found out that the principal of the college of Mpwapwa was in conflict with Peter (a tutor) stemming from the fact that Peter was a good and a very nice singer. 

Evidence of Malice
Malice may be proved by previously strained relations, unreasonable or improper conduct like advertising of the charge or getting up false evidence. Though mere carelessness is not per se proof of malice unreasonable conduct like haste, recklessness or failure to prove enquiries would be some evidence.  When there is absence of some reasonable cause owing to defendant’s want of belief in the truth of his charge is the conclusive evidence of malice. However, the converse proposition is not true because a person may be inspired by malice and also has a reasonable belief in the truth of his case.  There may be malice either in commencing a prosecution or continuing one, honestly began. The mere fact that criminal prosecution resulted in acquittal or discharge of the accused will not establish that the defendant had acted with malice.

 5) That the plaintiff suffered some damage.
 It has to be proved that the plaintiff has suffered damages as a result of the prosecution complaint of. Even though the proceedings terminate in favour of the plaintiff, he may suffer damage as a result of the prosecution.  The damages may not necessarily be pecuniary. According to HOLT C.J., ‘classic analysis in Savile v. Robert, there could be three sort of damages any one of which could be sufficient to support any action of malicious prosecution.
1) The damage to a man’s fame as where the matter whereof he is accused is scandalous.
2) The damage done to a person as where man is put to a danger of losing his life, limb or liberty
3) The damage to a man’s property as where is forced to expend money in necessary charges, to acquit himself of the crime of which he is accused.

§ The damage must also be the reasonable and probable results of malicious prosecution and not too remote. In assessing damage the court to some extent would have to consider
 1) The nature of the offence the plaintiff was charged of
 2) The inconvenience to which the plaintiff was charged to
 3) Monetary loss and
 4) The status and prosecution of the person prosecuted
 Malicious Civil Proceeding
 An action will not lie for maliciously and without reasonable and probable cause instituting suit the reason stated to be is that “ such a case does not necessarily and naturally involve damage to the party sued. The civil action which is false will be dismissed at the hearing. The defendant’s reputation will be cleared against all imputations made against him and he will be awarded costs against the opponent. The law does not award damage for mental anxiety, or extra costs incurred beyond those imposed on unsuccessful parties.


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Void , illegal and unenforceable contracts

contract , law

Introduction

The spirit of law especially in contracts is to protect the disadvantageous who have been induced to enter into unfair contracts by the advantageous one who seek to benefit from such kinds of contract, and this may largely explain as to why whether be it illegal or void contract will not be enforced before the court of law. This work therefore seeks to highlight the main principles regarding the illegal, void and unenforceable contract while confining the discussion to the spirit of the Law in protecting the innocent party to contracts.

Principles relating to Void, Illegal and unenforceable agreements
All agreements may not be enforceable at law. Only those agreements which fulfill the essentials laid down in Section 10 of Law of Contract Act, can be enforced.

Void Agreement

The Contract Act specifically declares certain agreements to be void. According to section 2 (1) (g), an agreement not enforceable by law is void. Such an agreement does not give rise to any legal consequences and thus void ab initio.

Contract Expressly declared void under the law of Contract Act
The law of Contract Act, declare certain transaction to be void and therefore such agreement cannot be enforced with the intention to protect the innocent party and not benefiting the advantageous ones and this includes the followings: -

Agreement by a minor or a person of unsound mind interms of Section 11, agreement of which  the consideration  or  object is  unlawful interms of Section 23,  Agreement  made  under  a  bilateral  mistake of fact material to the agreement interms of section 20, Agreement of which the  consideration  or  object is  unlawful  in  part and the  illegal  part  can  not be  separated  from  the  legal  part as per Section 24,  Agreement  made without consideration as per Section 25 of the Law of Contract Act .

Also it includes, Agreement in  restraint of  marriage as per Section 26, Agreement in restrain  of  trade as per Section 27, Agreement in  restrain  of  legal  proceedings as per Section 28, Agreements  the  meaning  of  which  is uncertain as per Section 29, Agreements  by way of wager interms of section 30, Agreements contingent on impossible events as per Section 36 and Agreements to do  impossible acts as per Section 56 of the Law of Contract Act .
Some discussion on void agreement and its relating principles

Agreement by a Minor
A person who has not the age of majority signifies as minor. Law acts as the guardian of minors and protects their rights, because their mental facilities are not mature and thus, they do not possess the capacity of judge what is good and what is bad for them. Accordingly, where is a minor charged with obligations and the other contracting party seeks to enforce those obligations against the minor, the agreement is deemed as void.  
In the case of Nash v. Inman, the defendant was an infant college student. Before proceeding to college, his father bought him all the necessary clothing material. However, while in college, he bought additional clothing material from the plaintiff but did not pay for them and was sued. His father gave evidence that he had bought him all the necessary clothing material. The court held that, though the clothes were suitable to the minor’s condition in life, these goods were not necessaries because the minor was well provided with clothes by his rich father.

Agreement by a person of unsound mind
A person who does not possess a sound mind or whose mental powers are not arranged or whose mental condition is not under his or her own control. Any agreement by person of unsound mind is absolutely void because he has no capacity to judge, what is good and what is bad for him.
In Imperial Loan Co. Ltd v Stone, the defendant was sued on a promissory note he had signed. He argued that at the time, he was insane and therefore incapable of comprehending the nature or effects of his acts and that he was not liable on the promissory note as the contract was void by reason of insanity. In the words of Lopes L.J. “In order to avoid a fair contract on the ground of insanity, the mental capacity of the one contracting must be known to the other contracting party.
Agreement Made Without Consideration
Within the meaning of Section 25 of the Law of Contract Act, An agreement made without consideration is void, It is expressed in writing and registered under the law for the time being enforce for the registration of (documents),  and  is  made  on  account  of natural  love  and  affection  between  parties  standing  in  a  near  relation  to each  other. This is reflected in the case of Alfi East African v Themi Industries and Distributors Agency Ltd, where the sale of machinery was not supported by a consideration that in price in contracts of sales, therefore the contract was held to be void as an essential element of a contract of sale that is price which is the consideration for a contract was not stated.

Generally, the underlying principle as far as void contract are concerned is that, such contracts will not be enforced as the law acts as the guardian of those who are disadvantageous and thus protects their rights against those with dirty minds who seek benefit under void contract.
Illegal Agreements
A contract is illegal when it contains unlawful object and consideration and therefore such contract is unenforceable as it is a contrary to the law or public policy. The provision of section 23 of Law of contact Act, declare an agreement with unlawful object and consideration null and void and hence from its very beginning or from its inception was not a contract.

Some discussion on illegal contract and its relating principles

An illegal contract is un-enforceable. This is because for an agreement to be enforceable, it must have been entered into for a lawful purpose. A contract may be declared, illegal by statutes or a court of law. 

Contracts declared illegal by Statutes
Under the employment Act, wages or salaries are payable in money or money’s worth. A contact to pay wages or salary in kind is illegal and void. Such a contract is said to be illegal as formed and is unenforceable. Land laws of particular countries restrict on sale or lease of land to a foreigner, Restriction put by trade laws, no license no trade.

Contracts declared illegal by courts of law 
A contract to commit a crime, tort or fraud. 
Such a contract is illegal and unenforceable as it is a contrary to public policy to commit crimes, torts or fraud in Bigos v. Boustead , where the object of the contract was to violate the English Exchange control regulations; it was held that the contract was illegal and unenforceable.
Contracts liable to promote corruption in public. 
Such a contract is unenforceable as corruption is contrary to public policy. In Parkinson v. College of Ambulance and Another,the secretary of a charitable organization informed that plaintiff that it was on to it. The plaintiff gave ₤3,000 but was not knighted as only the King could bestow the title. In an action to recover the sum, it was held that it was irrecoverable as the contract was illegal.

Contracts liable to promote sexual immorality. 

These are contracts contra bonos mores (contrary to good morals). Such a contract is unenforceable on account of illegality. The contract may be illegal as performed. In Pearce v. Brooks, the plaintiff owned a beautiful horse drawn carriage which he went to the defendant for 12 months at stated charges. The plaintiff knew that the defendant was a prostitute and intended to use the carriage to solicit influential customers. In an action to enforce payment of the hiring charges, it was held that that contract was unenforceable as it was illegal as performed as its purpose was to promote sexual immorality.

Generally in this aspect also the court will not enforce the illegal contract with the view of protecting the innocent party and that’s why an illegal contract is said to be beyond the pale of the law and thus such a contract is unenforceable as it creates no rights and imposes no obligations on the parties. Neither party is bound to perform. Money or assets changing hands under an illegal contract is irrecoverable as gains and losses remain where they have fallen.

Unenforceable agreements
This includes all agreements that basically has not fulfilled some legal obligations or formalities that is the suffer some technical defects like insufficient stamp, lack of signature just to mention a few. Section 64 of the Land Act, requires the disposition of a right of occupancy be in writing and being signed short of that the agreement becomes unenforceable. The section reads “A contract for the disposition of a right of occupancy or any derivative right in it or a mortgage is enforceable in a proceeding only if– (a) the contract is in writing (b) or there is a written memorandum of its terms; the contract or the written memorandum is signed by the party against whom the contract is sought to be enforced”.

CONCLUSION
Generally, a contract lacking some of legal formalities like a signature will not be enforced and the same extends to both void and illegal contract, and this reflect the intention of the Law to protect the disadvantageous one as the contract might be induced by either fraud or misrepresentation and hence enforcing it will generally be a detriment to the innocent party and a blessing to the advantageous one.


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Insurance: Rules in assessment of damages

contract , insurance


Introduction

Essentially it’s a well celebrated principle in law of contracts that when a contract is so breached the innocent party will be entitled with several remedies from the other party who breached the contract as per Section 73 (1) of the Law of Contract Act . In simple terms remedies refers to compassion be it monetary or otherwise paid to the innocent party for any loss accrued from the breach of contract. Such remedies may either be damages or the equitable remedies.  This post however is going to center its discussion on the damages and more important on the basic factors that courts normally consider when awarding them.

MEANING OF DAMAGES
Damages is a remedy for breach of a contractual promise, repayment of which may be specifically enforced in the court and are designed to compensate the plaintiff for the damage, loss or injury he has suffered from the breach of contract.
Lord Greene MR, in Hall Brothers SS Co. Ltd V. Young, defined the term damages thus: “the sums payable by way of damages are sums which fall to be paid by reason of some breach of duty or obligation, whether that duty or obligation is imposed by contract, by the general law, or legislation.”

PURPOSE OF AWARDING DAMAGES
The main purpose of awarding damages is to put the injured party as near as possible in the same position so far as money can do it, as if he had not been injured. This view is affirmed in the case of Addis v Gramophone Co. Ltd, where a court retaliated that “I have always understood that damages for breach of contract were in the nature to compensate and not punishment”. Generally, under this respect it can be construed that, the sole purpose of awarding damages is to restore the injured party to the position he would have been if the breached contract was so performed and not to punish the party so breached the contract.

TYPES OF DAMAGES
Damages for breach of contract may nominal or substantial. Nominal Damages, this is an amount awarded by the court to show that a party’s rights have been violated but no loss was occasioned or the party was unable to prove loss. Substantial Damages, this is an amount by the court as the actual loss suffered or as the amount the court is willing to recognize as direct consequences of the breach of the contract.
Parties to a contract may beforehand specify the amount payable to the innocent party in the event of breach. The sum specified may be Liquidated damages or a Penalty.
In Wallis v. Smith, it was held that liquidated damages are an amount which represents almost the actual loss occasioned and is awarded irrespective of the actual loss.  If the sum has no relation to the actual loss, but is intended to compel performance or it is a sum to be forfeited by the party in default it is regarded as a penalty. A penalty is generally extravagant it covers but does not access loss. Penalties cannot be awarded by the court; the court assess the amount payable by applying the rules of assessment of damages.
In Angela Mpanduji v. Ancilla Kilinda, it was stated that Exemplary or punitive or vindictive damages are damages given not merely as pecuniary compensation for the loss actually sustained by the plaintiff, but also as a kind of punishment of the defendant with the view of discouraging similar wrongs in future.
Other classes of damages include, general damages, that the law presumes to have resulted from the defendant’s tort or breach of contract. They are normally damaging at large and can be nominal or substantial depending on the circumstances of each case. Special Damages are such a loss as will not be presumed by law. They are special expenses incurred or monies actually lost.

MAINBODY
Essential Factors that courts put into consideration when awarding the damages

Remoteness of damages
In awarding the damages the court normally take into account the proximity between the injury or loss sustained and the breach and under this regard the court will more likely to award the damages when are not too remote from the breach and not otherwise. The rule established under section 73 (2) of the Law of Contract Act, the innocent party’s loss or damage must not be too remote for a court to award the compensation. In Hadley v Baxendale, where the defendant agreed to transport the plaintiff’s broken crankshaft from the plaintiff’s mill in Gloucester to the manufacturer in Greenwich. It was a term of the contract that the crankshaft would be delivered by the following day. In breach, the defendant caused a delay in the delivery of the broken crankshaft. As a result, the plaintiff’s mill was idle for an extended period of time. In subsequent litigation, the plaintiff claimed damages for loss of profits for the period the mill was idle. The court held that the defendant was not liable for the loss of profits caused by the delay, as the damage did not directly flow from the breach of the contract. 
However, the situation was different in the case of Victoria Laundry (Windsor) Ltd v Newman Industries Limited, the defendant agreed to sell the plaintiff a boiler for use in its laundry business. It was a term of the contract that the boiler be promptly delivered, as it was intended to ‘put it into use in the shortest possible space of time’. The boiler was damaged during dismantling, resulting in delivery being delayed for nearly six months. The court held that the plaintiff was entitled to recover the profits that it could have expected from increased capacity, had the boiler been operable. These damages were recoverable because the defendant knew that the plaintiff wanted the boiler for immediate use. Therefore, the loss was not too remote from the breach.
From the above cases presented it can be established that, where there is no stipulation in the contract as to the payment of damages, the court will normally resort by looking whether or not the loss suffered by the plaintiff was proximate to the defendant breach.

Mitigation of Loss
The innocent party who suffers from a breach of contract must take reasonable steps to mitigate (that is, to lessen) the loss suffered. The underlying principle is that the law will not allow recovery of losses that the innocent party could have avoided by prompt and reasonable action. However, any moneys spent in mitigating or attempting to mitigate losses are recoverable as damages.
If the party fails to mitigate its loss the amount by which loss ought to have been reduced is irrecoverable. In Harris v. Edmonds, it was held that where the charterer of a ship failed to provide cargo in breach of contract, the ship captain was bound to accept cargo from other person’s at competitive rates. Whether or not the innocent party has acted reasonably in mitigating its loss is a question of fact.  

In Musa Hassan v. Hunt and Another, the appellant had contracted to buy all the milk produced by the respondent for one year. On one occasion, the appellate refused to take delivery of the milk on the ground that it was unfit for human consumption; the respondent proved that it was fit for human consumption. After the refusal the respondent converted the milk to ghee and casein which fetched a lower price than milk. The appellant argued that the respondent had not acted reasonably in mitigating the loss. It was held that the respondent had reasonably.
Therefore, in this respect the court in awarding the damages will take into consideration on whether the plaintiff has acted reasonably in mitigating the loss and the damages payable will reflect the extent to which the plaintiff has taken reasonable steps to mitigate the loss suffered.

Non-economic damages 
This can also be taken into consideration as a prominent factor that the court will take into consideration in awarding the damages especially where there is no provision in the contract. Generally, damages are not awarded to compensate for non-economic matters, such as embarrassment or distress. In Addis v Gramophone Co Ltd, the defendant (Gramophone) wrongfully dismissed the plaintiff (Addis) from his employment. The plaintiff subsequently sued for damages for wrongful dismissal. At first instance, the plaintiff received damages that included an amount for the embarrassment, humiliation and general distress suffered by the plaintiff and caused by the way in which he was dismissed. On appeal, the House of Lords set this award aside as not being the proper subject for damages.
Therefore, in the above presented case the court take into consideration of economic factors in determining the payment of damages and from this case it can be construed that, the court will generally refuse to pay the damages for loss which is non-economic.

Causation 
This also constitute to another significant factor that the court will consider in awarding damages in the event where there is no provision in the contract to that effect. In March v. MH Stamare Pty Ltd, the court stated that, ‘as a matter of ordinary common sense’, the other party’s breach must be regarded as a cause of the innocent party’s loss. If there are concurrent causes for the loss or damage, it is sufficient if the other party’s breach is a cause. However, if the loss or damage is caused by factors for which the other party is not responsible, the causation connection will not be established.  

In Alexander v Cambridge Credit Corporation, the defendants (Alexander and others), who were the plaintiff’s (Cambridge’s) auditors, allegedly breached their service contract by performing their services negligently. Despite their alleged breach, the defendants were held not responsible for the subsequent financial losses suffered by the plaintiff. The court was satisfied that the losses were caused by a substantial downturn in the property market, and the decision of the plaintiff to expand its operations during unfavorable economic conditions. 

From the above facts it can therefore be construed that, in awarding the damages the court will take into consideration on whether or not the plaintiff loss was actually caused by defendant and causation is a question of fact, not law and is normally determined by but for’ test. In other words, would the plaintiff’s loss have occurred but for the defendant’s breach of the contract?

CONCLUSION
Generally, the court do take into consideration a number of intricate factors when awarding damages and these factors largely determining on whether the injured patty will be awarded the damages or the court will generally refuse to award the damages. 

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Differences between insurance and gambling

busines law , law


Insurance and gambling defined

Insurance is a contract, where by one person called the insurer undertakes in return for the agreed consideration called the premium to pay to another person called the insured a sum of money or its equivalent on the happening of the specified event.

A propounding meaning of insurance was provided in the case of Scottish Amicable Heritage Securities Association Ltd v Northern Assurance Co, Where Lord Justice Clerk, defined insurance as a contract of insurance belonging to a very ordinary class by which the insurer undertakes in consideration, may sustain by the occurrence of an uncertain contingency.

Gambling is generally defined as voluntary risking of sum of money called a stake, wager or bet in the outcome of a game or other event.

A classic definition is however available in the case of Carlill v Carbolic Smoke Ball Co , Where gambling was defined to mean “contract by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other consideration for making of such contract by either of the parties. If either of the parties may win but cannot lose, or may lose but cannot win, it is not”

Insurance and gambling compared

Insurance and gambling seem to be same in some extent. As both, one party promises to pay a given sum to the other upon the occurrence of a given future event, the promise being condition upon the payment of, or agreement to pay, a stipulated amount by the other party to the contract. 

In either case, one party may receive more, much more, than he paid or agreed to pay . Besides, a contract of insurance may similar with gambling agreement whereby the insurer bets with the insured that his house will not be burnt and giving him the odds of its value, it is a legal and enforceable contract with important economic and social purposes. It’s for this reason have made some people think that both Insurance and gambling are non-profit institution.

While it is true that both Insurance and gambling involve money changing hands on the basis of chance events, it is important to understand the difference between the two as follows: -

Insurance and gambling distinguished

It is often claimed that insurance is a form of gambling. “You bet that you will die and the insurance company bets that you won’t” or “I bet the insurance company $300 against $100,000 that my house will burn.” The fallacy of these statements should be obvious. In the case of gambling, there is no chance of loss, hence no risk, before the wager. In the case of insurance, the chance of loss exists whether or not there is an insurance contract in effect. In other words, the basic distinction between insurance and gambling is that gambling creates a risk, while insurance provides for the transfer of an existing risk. The other differences between Insurance and gambling are: -

Interms of Insurable Interest
In Insurance, Insurable Interest is a pre-requisite whereas in gambling the interest is limited to the amount to be won or lost. In Lucena v. Craufurd, the court defined insurable interest to mean a right in Property, which in either case may be cost upon some contingency affecting the possession or enjoyment of the party.

Insurable interest distinguishes contracts of insurance from gambling in order to define the legitimate area of insurance business. Insurable interest is required for all types of insurance and its absence renders the contract void and hence unenforceable.


Interms of duty to disclose information
Full disclosure (Utmost Good Faith) is required from both parties to an assurance contract whereas this is not necessary in a gambling contract. In the event of non-disclosure of the information the insurer may avoid the contract after discovering that there was non-disclosure of the contract and the insured cannot claim back his premium paid previously. In the case Kausar v. Eagle Star, Staughton J. observed that, avoidance of or non-disclosure is drastic remedy. It enables the insurer to disclaim liability. For example, a contract of Marine Insurance is a contract based on utmost good faith as per Section 17, and therefore section 18 of the same Act impose a duty to insured to disclose every material circumstance known to assured failure to do the insurer may avoid the contract. 

Interms of their enforceability

Insurance contract is enforceable at law whereas there is no legal recourse for any of the two parties in a gambling contract. Section 90 of the Marine Insurance Act , provides that every contract of marine insurance by way of wager or gaming is void; and that a contract of marine insurance is deemed to be a wagering contract where the assured has not an insurable interest as per Section 90 (2) .

Interms of minimization of uncertainty and increasing uncertainty

Insurance helps to minimize the uncertainty and risks in the society, hence it promotes industrialization and economic development. In contrast, gambling increases uncertainty, risks and conflict in the society. It does not promote industrialization. Rather than it increases people’s will to earn money by speculation or luck, not by honest activities of labor. Hence gambling increases bad people and social crime.

Interms of restoration
Insurance contract restore the insured financially in completely of partially if a loss occurs. In contrast, consistent gambling transactions generally never restore the losers to their former financial position.

Instances where both gambling and insurance can be construed to be business making and profit maximization institutions

Professor Vaughan, E., In his book Fundamentals of Risk and Insurance, highlighted major circumstances where an insurance and gambling business maximize profit and hence refute the notion that they are just caring or non-profit institutions, and this includes the followings: -

In Insurance by not returning the premiums where the insured is guilty of fraud in connection with the contract of insurance and if the policy contains a forfeiture clause when it is void. Also, the insured cannot indemnify the amount which is bigger than the current market value of the destroyed property. Through this incidence an insurance company may maximize profit, equally in gambling where a certain event doesn’t occur the wagered money cannot be returned and hence maximize the profit.



REFERENCE
BOOKS
Vaughan, E., (2014). Fundamentals of Risk and Insurance (11th Ed). Kendallville Publishers: Newyork.
Hardy Ivamy E.R, (1986), The General Principles Of Insurance Law (5th Ed): London
Birds, J, (1993), The Modern Insurance Law (3rd Edn). Sweet & Maxwell: London

STATUTE
 Marine Insurance Act of 2002


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The doctrine of privity in contract

contract , law

INTRODUCTION

The assertion that only parties to contract can sue or being sued under it is commonly known as doctrine of privity of contract and largely is a common law principle or mechanism by which contractual rights and liabilities are limited to the contracting parties. The logic behind this is that only contracting parties have accepted the terms and responsibilities stipulated in the agreement.  Basic rule is that if there is no privity to contract, there is no right to sue and cannot be sued.

This doctrine is to the effect that only a person who is party to a contract can sue or be sued on it. It means that only a person who has provided consideration to a promise can sue or be sued on it and it also means that a stranger to consideration cannot sue or be sued even if the contract was intended to benefit him.

Privity of contract is the relation which exists between the parties to a contract which enable one person to sue another on it. The privity of contract principle is to the effect that only parties to a contract acquires T and incur liability under it. As such a stranger to a contract cannot sue or be sued on it.  

DEVELOPMENT OF DOCTRINE OF PRIVITY TO CONTRACT IN ENGLAND

The doctrine of privity to contract that is only parties to contract can sue or be sued under the contract and not the third party, in England developed through a number of courts decisions as it shown below: -

In Tweddle v Atkinson, In this case two couples intended to get marriage; before the marriage the parents that are father of the husband and father of the wife agreed that the father of the wife should pay £290 to the husband and the real father will only pay £ 100. This promise was not fulfilled by the father of a wife since he paid only £ 90. Therefore, the husband instituted a case against the father of the wife. The issue before the court was whether the husband of a wife who is not the party to the contract could sue on it. 

It was held that the husband has no right to sue because he is not a party to a contract. This is because there is existence of relationship between two fathers that is the father of the husband and the father of the wife. The husband is regarded as a beneficiary or a stranger. No act could be brought to the court by the party who is stranger to the contract. Also, it is established principle that no stranger to the consideration can take advantage of the contract although made for his benefits. It is important to note that in this case the plaintiff was both stranger to contract and consideration.

Similarly, the above position was affirmed in the case of Dunlop Pneumatic Tyre Co., Ltd v Selfridge & Co., Ltd, where the appellants in this case (Dunlop) who was manufacturers of motorcar tyres sold some of the Tyres to on Dew and Co, with an agreement that these tyres will not be sold below the list price. Dew & Co on their side sold some of the tyres to the respondents (Selfridge& Co.) with an agreement that the respondents shall observe conditions as to price and the respondents also promised that they would pay the appellants a sum of $5 for every tyre sold below the list price. The respondents sold some of tyres below the list price and the appellants brought an action against them (respondents) to recover damages for the breach. 

The House of Lords held that: The plaintiff could not maintain an action against the respondents because there was no contract between the two parties. It was further observed that even if it is taken that Dew & co. were action as there was no consideration between the two and the respondents since the whole of purchase price was paid by Selfridge & Co. to Dew & Co.  Their Lordship reasoned thus: 

“…In the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue or be sued on it. Our law knows nothing of a Jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property as for example under a trust but cannot be conferred on a stranger to a contract as a right to enforce the contract in personam”.

The above quotation is to the effect that in England only people who are part to the contract can sue under it and obtain some rights there to and not a third party who haven’t furnished consideration or being the party to contract, though sometimes by a way of trust or any other means a stranger to contract can sue under the contract and obtain some rights thereto. The term Jus quaesitum tertio therefore means the right of a third party to enforce a contract to which he is not a party. However, such stranger to a contract cannot sue on it in his own name ever though he is the beneficiary of the arrangement that is he cannot enforce the contract in personam.

Yet again in the case of Beswick v Beswick, where the deceased agreed with the company that that the company should employ him as a consultant and also the company should pay his wife E5 per week if he dies, so when he dies the wife claim for it in two grounds, firstly she is a beneficiary of E5 and secondly, she was administrator of her husband estate. It was held that as administrator the widow could obtain an order of specific performance which would enforce the provision in the contract for benefit but that in her personal capacity for arrears, she had no cause of action. 

THE POSITION OF TANZANIA AS TO DOCTRINE OF PRIVITY OF CONTRACT
The aforesaid position in England is the same as that of Tanzania; however, In the Law of Contract Act is silent on the principle of privity of contract. Though section 2(1) (d) of the Law of Contract Act, permits a third person to furnish consideration for the promise but doesn’t allow him to sue on the contract on the ground that he furnished consideration .

The applicability of the doctrine of privity to contract that is only parties to contract can sue or be sued under it, is evidenced by looking on different court’s decision regarding privity to contract as follows: -

In the case of Burns & Blane Limited v. United Construction Company Limited , Plaintiff sued for goods sold and delivered and services rendered. Plaintiff had acted as a subcontractor to defendant, the main contractor, on a construction project. Defendant did not deny that it was liable under the contract. However, defendant alleged that plaintiff’s recovery should be reduced by the amount of expenses which defendant had incurred in correcting certain defects and also by the amount of a settlement which defendant had made with a third party, the company for which the building was being constructed, because of other defects in materials which plaintiff had supplied. It was held there was no privity of contract between plaintiff and the third party with which defendant made the settlement, nor did defendant expend funds to correct those defects in respect of which the settlement was made. Therefore, the amount of the settlement should not be deducted from plaintiffs.  

In Juma Garage v Co-Operative and Rural Development Bank , This case is about Privity of Contract, and issue was whether Respondent instructed to act for an insurance corporation, whether such instruction makes the respondent an agent of Agency-Agent acting for Principal and whether the agent may sue in his own name. The fact of this case is that, the respondent owned a motor vehicle with Registration Number SU 770 which was insured with the National Insurance Corporation (NIC). The vehicle was involved in an accident, which made NIC liable for its repair. NIC took the motor vehicle to the appellant for repairs and later on, when the appellant delayed to complete the work, NIC instructed the respondent to follow up the matter with the appellant. After completion the respondent sued the appellant for general and exemplary damages amounting to TZS 5 640 000 for loss of use of the motor vehicle, and a further sum of TZS.78200 being the cost of replacing some parts missing from the vehicle at the time the respondent took delivery of the motor vehicle. The High Court allowed the claim of exemplary damages, hence this appeal.

The court held that, the fact that NIC instructed the respondent to follow up the matter with the appellant and that it, NIC, would be responsible for expenses did not mean termination of the contract between NIC and the appellant; the respondent was not party to the contract with the appellant but merely an agent of NIC.

However, the doctrine of privity to contract in Tanzania is used with certain limitations, as the doctrine is normally not imposed in agreements or contracts that falls under customary laws and this is evidenced by the following courts decisions: -

In Ephraim Obongo v. Naftael Okeyo, where by the defendant, a lorry owner, used to collect cassava from plaintiff for selling. On one occasion, his lorry driver and turn boy went to plaintiff to collect some bags of cassava. Plaintiff refused to deliver the goods, demanding that they first produce some empty cassava bags which they had evidently taken another day, or some money.

They returned to defendant’s wife, who gave them 24 bags and T.shs. 190/-, and sent a not promising that everything would be taken care of when her husband returned from a journey. Plaintiff received no more money, and sued in Primary Court for the value of the cassava he had given them, and for some other empty bags not returned, less the money and bags received. The Primary Court held that since the transaction leading to the disputes was between plaintiff and the defendant’s wife the proper party to the suit was the defendant’s wife and not the defendant. On that ground he dismissed the suit. The case went on appeal to the District court and then to the High Court. Seaton J observed that the case involved an issue of privity of contract, a contract rather subtle and technical point which, perhaps Primary Court couldn’t deal with. He said.

“…In suits between Africans living within a local community and doing business amongst themselves on a basis of trust, I consider it would not be in the interests of justice to import technical notions of privity of contract and other such notions, unless clearly required by the law to do so…”

The same position was reflected in the case of Burns & Blane Limited v. United Construction Company Limited, Plaintiff sued for goods sold and delivered and services rendered. Plaintiff had acted as a subcontractor to defendant, the main contractor, on a construction project. Defendant did not deny that it was liable under the contract. However, defendant alleged that plaintiff’s recovery should be reduced by the amount of expenses which defendant had incurred in correcting certain defects and also by the amount of a settlement which defendant had made with a third party, the company for which the building was being constructed, because of other defects in materials which plaintiff had supplied. It was held that there was no privity of contract between plaintiff and the third party with which defendant made the settlement, nor did defendant expend funds to correct those defects in respect of which the settlement was made. Therefore, the amount of the settlement should not be deducted from plaintiff’s Claim.

From the above cases it is reasonable to propose that in Tanzania although a stranger to a consideration may sue and recover on the basis of section 2(1) d of the Law of Contract Act so long as he is a party to the contract. A stranger to a contract cannot sue on it in his own name ever though he is the beneficiary of the arrangement or that he furnished consideration.

EXCEPTIONS TO THE DOCTRINE OF PRIVITY OF CONTRACT 

Like the position of England which allows a third party who is not a party to contract to sue under it, the position is the same also in Tanzania as their certain branches of the law in Tanzania allow a third-party beneficiary to sue on the contract in his own name. Those contracts which allow a third party to sue on his mane include the following: 

Contract relating to trust 
Where a trust has been created and proved then the beneficiary (third party) may sue on the contract in his own name. It must be proved to the satisfaction of the court that trust was created. Once trust has been proved then the third party can sue the promissory to enforce the contract and becomes, as general rule entitled to the benefits under the contract.

A third party can enforce a contract, if it can be established that the promise intended to create a trust. “A trust is an obligation, enforceable in equity, by which a person, the trustee, holds property on behalf of another, the beneficiary”. The law of trusts gives third party beneficiary the right to action against promisor’s non-performance.  
In a practical context, the promise (trustee) on the insistence by the third party (beneficiary) takes action against the promisor in case of breach.  There can be no trust in case there is no promise or property that the trustee holds for the beneficiary. Establishment of intention of trust is very important in the law of trust. 

In Tanzania Union of Industrial and Commercial Workers [TUCO] at Mbeya Cement Company Ltd v Mbeya Cement Company Ltd and National Insurances Corporation, in this case the action based on trust deed and the issue was whether plaintiff can sue on trust deed to which he is not party and whether the trust rules applicable.

The fact of the case is that, the plaintiff filed a suit against the defendants jointly, for among other relief, a specific performance of a trust deed. The basic of the suit was the trust deed rules and regulation for Mbeya Cement Company group staff endowment assurance scheme which was annexed to plaint. The counsels for defendants raised a preliminary objection for plaintiff had no locus stand to institute the suit either for lack of legal status or based on trust deed.

It was held that although the plaintiff union is capable of suing and being sued, it can only do so if the alleged wrongful acts were committed against it. It’s for each for each individual employee to sue the defendants for their rights under the trust deed and group endowment scheme.

Negotiable instrument 
The Bill of Exchange Act under section 38 (a) empowers a holder of a bill to sue on it in his own name. A holder is defined under section 2 of the Bill of Exchange Act that "holder" means the payee or endorsee of a bill or note that is in possession of it, or the bearer thereof. A holder may sue any person whose signature appears on the bill not necessarily the immediate party. Therefore, by closely observing the above provision it’s clear that such provision provides an exception to the general rule of privity of contract.

Transfer of landed property 
A person who buys property with notice that the seller or owner of the land is bound by certain obligations created by a covenant affecting the land shall be bound by them even though he was not a party to the covenant. 

Contract relating to the law of agency
An agent can take a legal action and recover damages for the loss endured by his principal. The doctrine of agency gives such rights in a business setting.  “Agency is the fiduciary relationship … the principal's control, and the agent manifests assent or otherwise consents so to act.

Under part X of the Law of Contract Act deals with contract relating to an agency. There are provisions dealing with the effect of agency on contracts with third persons. 

Under section 178 of the Law of Contract Act expressly provides that: Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences as if the contracts had been entered into and the acts done by the principal in person.  
Agency can arise in a number of ways but one that gives problems with the concept of privity of contract is the case of the undisclosed principal. This arises where the agent doesn’t disclose that he is acting on behalf of the principle when he enters into the contract with the third party, but simply contracts in his name. In this situation it has been held that when the agency is disclosed, the third party may elect to sue either the agent or principal and either agency or principal also may sue the third party.

Contract based on insurance 
This type of contract normally found under the Road Traffic Act, where by the third party acquire right to sue. Therefore, for those owners of motor vehicle must have compulsory third party insurance in the sense that a person who is not known and foreseeable to the contract may acquire rights and that is the third party. Therefore, a third party may sue the parties to the contract of insurance that is either the owner of the motor vehicle or the company of insurance or both.

CRITICISMS OF THE DOCTRINE OF PRIVITY OF CONTRACT
Despite the rule relates to the benefit of the contract and states that a contract can only be enforced by a person who is a party to the contract, or, alternatively, a person who is not a party to a contract cannot claim any benefit under it even if the contracting parties had themselves agreed that the third party should be able to enforce it.

 The doctrine of privity to contract is faced with some criticism among different authors and educators, such criticism leveled against the doctrine include the followings: -

Firstly, the doctrine of privity of contract it infringes the right of beneficiaries. Some contract may be made purposely for the benefits of the third party. But the doctrine limits liabilities and rights to the parties only. Hence the third part’s right is infringed. Since he/she was not a party to a contract but it was made for his or her interest. Secondly,Privity of contract defeats the intention of the parties to the contract.

CONCLUSION
Third party rights would be effective only when the contract expressly states it or if the terms in contract expressly purported to confer a benefit on the third party and it can be interpreted that the third party can be permitted to have a remedy in pursuing such benefit against them. So, all these exceptions and statutes explained above are considered important and highly beneficial in circumventing the rule when third party rights need to be established

REFERENCE

BOOKS
Mckendrick., E (2009). Contract Law (8th Ed). Basingstoke: Palgrave Macmillan.
Beatson, J, Burrows, A & Cartwright, J. (2010). Anson’s Law of Contract (29th ed). Oxford University Press: New York
Nditi, N (2004). General Principles of Contracts in East Africa. Dar es Salaam: Dar es Salaam University Press

STATUTE
Law of Contract Act [Cap 345 R.E. 2002]
The Bill of Exchange Act [CAP 215 R.E. 2002]
Road Traffic Act, [CAP 168 R.E. 2002]

CASES REFERED
Tweddle v Atkinson [1861] 123 E.R 762
Dunlop Pneumatic Tyre Co., Ltd v Selfridge & Co., Ltd [1915] A.C 847
Beswick v Beswick [1966] 3ALL E.R. 1 (C.A)
Burns & Blane Limited v. United Construction Company Limited [1967] H.C.D No 156
Juma Garage v Co-Operative and Rural Development Bank [Civil Appeal No 58 of 1996]
Tanzania Union of Industrial and Commercial Workers [TUCO] at Mbeya Cement Company Ltd v Mbeya Cement Company Ltd and National Insurances Corporation [Civil Case No. 135 of 2000]


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