Torts LWB133 Week 7 Semester 2, 2000

1. Torts LWB133 Week 7Semester 2, 2000 Pure Economic Loss continued...

2. Action in Negligence • Duty • Breach • Damage

3. Pure Economic Loss • Category of damage • not physical damage • not consequential economic loss

4. Exclusionary Rule • Traditionally no right to recover in negligence for pure economic loss • Recovery no longer excluded • Hedley Byrne v Heller • Caltex Oil v Dredge Willemsdad

5. No general rule • No general rule which recognises existence of a duty of care to avoid reasonably foreseeable economic loss

6. Exceptions • Possible to identify a number of exceptions to rule that generally no duty of care owed to avoid foreseeable economic loss • first scenario in which duty found to be owed • economic loss resulting from negligent misstatement • Hedley Byrne v Heller • Esanda • exceptions not limited to cases of loss resulting from negligent misstatement

7. Reluctance to find duty owed • Policy considerations, for example; • fear of indeterminate liability • eg Caltex • inconsistency with community standards re what is ordinarily legitimate in the pursuit of personal advantage • eg Bryan v Maloney

8. Establishing a duty • Reasonable foreseeability of economic loss will never be sufficient • compare with physical injury • eg Deane J in Jeansch v Coffey • Something more will always be required

9. Pursuit of a General Principle? • Judicial attempt to define the something more unsuccessful, for example; • Anns v Merton London Borough Council • two stage test • Proximity • Jaensch v Coffey • San Sebastian • Bryan v Maloney • Incremental/Case by Case Approach • Hill v Van Erp

10. Where are we now? • Perre v Apand • no uniform approach to establishing a duty of care in a novel fact case • no general acceptance that pursuit of general principle was desirable or possible • see eg per Gaudron J at 1194-5 • the law is still developing

11. Perre v Apand • P - potato growers • grown for export to WA market • D - proved seed to Sparnons on nearby property • seed infected with bacterial wilt • WA legislation prohibited import of potatoes from within 20 K radius of affected property • P could not sell their potatoes in WA

12. Classification of P’s Loss • P’s property not infected with the disease • no physical damage to person or property of P • Loss suffered was inability to sell potatoes in WA • pure economic loss

13. Issue for High court • Did the defendant owe a duty of care to the plaintiff to avoid the foreseeable risk of economic loss?

14. Outcome • All 7 justices allowed the Perre’s claim

15. Reasoning • Primary policy concerns • indeterminate liability • High Court concluded this was not a problem here • concern not to render ordinary business practice tortious • this was not a issue in this case • was there a more appropriate remedy? • Insurance not an issue

16. Four possible approaches to duty issue • the incremental • McHugh, Hayne & Callinan JJ • the legally recognised rights • Gaudron J • the protected interests - “salient features” • Gleeson CJ & Gummow J • the three-stage Caparo • Kirby J

17. Common Features • Is P vulnerable or dependent on D? • were the plaintiffs otherwise able to protect themselves? • Was D in overall control of the situation? • D’s knowledge • of the Ps as an ascertained class • of P’s vulnerability • Is there physical/commercial closeness?

18. Previously decided cases • Economic loss resulting from negligent misstatement • Economic loss resulting from damage to the property of another • Failure of a professional person to perform an undertaking or service properly • Defective buildings

19. Spartan Steel & Alloys Ltd v Martin & Co

20. Plaintiff’s claim • damaged material • physical damage • loss of profit on that material • consequential economic loss • loss of profits on further melts • pure economic loss

21. Caltex Oil v The Dredge ‘Willemstad’ • loss suffered by Caltex • oil lost from pipeline • physical damage • increased transportation costs • pure economic loss Alternative transport Dredge Oil spill

22. Limitation on the persons or class of persons to whom duty of care owed for pure economic loss • unanimous decision that duty was owed to Caltex • different reasoning adopted by each member of the court

23. Reasoning • Defendant has knowledge of plaintiff individually not merely as member of unascertained class • Gibbs and Mason JJ • Sufficient proximity between tortious act and injury • Stephen J • physical effect on the person or property of the plaintiff • Jacobs J • No policy reasons to disallow recovery • Murphy J

24. Attempts to Apply Caltex • Christopher &Ors v The Motor Vessel “Fiji Gas” • the view of the majority in Caltex was that damages based upon purely economic loss not connected with damage to the person or property of the plaintiff are not, in general, recoverable • Ball v Consolidated Rutile

25. Failure of a professional person to perform an undertaking or service properly

26. Does a solicitor who prepares a will owe a duty of care to an intended but disappointed beneficiary?

27. Hill v Van Erp • Brennan CJ • accepted that practical justice tends in favour of a remedy • did not accept that duty arose through extension of principles in Hedley Byrne • necesary to define the elements additional to mere foreseeability which would allow recovery • claim only by intended but disappointed beneficiary • duty owed is in the performance of work in respect of which he owes a corresponding contractual duty to the testator

28. Dawson J • adopted incremental approach • something more than reasonable foreseeability is required to establish a duty of care • what is sufficient or necessary in one case is a guide to what is sufficient or necessary in another • proximity is result of a process of reasoning; not the process itself • relationship of proximity established by assumption of responsibility and reliance

29. Toohey J • agreed in general with the reasoning of Dawson J

30. Gaudron J • there were no policy factors which operated to deny the existence of a duty of care • policy favoured the finding of a duty of care • the contractual relationship between the testator and the solicitor was relevant • a duty to a third party would only arise where the alleged duty was consistent with the duty owed to the client • the element of control was relevant • the nature of the loss suffered was the loss of: • a precise legal right which, in turn, has resulted in economic loss

31. Gummow J • there were no policy reasons to disallow recovery • recognition of a duty did not interfere with any existing legal right • the facts of the case fell within a gap in the law • duty arose as a result of a complex of factors (at page 530)

32. Defective Buildings • cases in which the plaintiff’s property is and always has been defective • traditionally no duty of care in tort

33. English cases • 1978 - Anns v Merton London Borough Council • 1983 - Junior Books v Veitchi • 1989 - D&F Estates v Church Commissioners for England • 1990 - Murphy v Brentwood C.C.

34. Liability of Builder for Defective Foundations in Australia • particular category of case involving liability in tort for defective structures • Bryan v Maloney • diminution in value of the house categorised as pure economic loss

35. Significance of Perre v Apand? • No majority approval of incremental approach • Case by case approach • Reasonable foreseeability of economic loss not sufficient • Identification of relevant factors • emerging emphasis on vulnerability, dependence and control? • Policy considerations remain important