Understanding Pure Economic Loss in Negligence Law

1. Torts LWB133Week 6 Semester 2 ,2000 Part VI - Economic Loss

2. PART VII - ECONOMIC LOSS • SECTION 1 • Negligent and Fraudulent Misrepresentation • SECTION 2 • Pure Economic Loss Other than by Misrepresentation

3. Novel Categories of Negligence • cases not clearly covered by precedent • examples • nervous shock • pure economic loss • public authorities • non-feasance

4. Negligence Action • Three elements • duty • breach • damage

5. Duty of Care • Courts are reluctant to find a duty of care owed by a defendant to a plaintiff if the damage suffered by the plaintiff is classified as pure economic loss

6. What is pure economic loss? • it is not physical damage • it is not economic loss which is consequential on physical damage

7. POLICY CONSIDERATIONS • the fear of indeterminate liability • disproportion between defendant’s blameworthiness and liability • interrelationship between liability in tort and contract • the need for certainty • the effect of insurance

8. Developing approach of the High Court • Hill v Van Erp (1997) • concept of proximity is no longer supported by a majority of the High Court as a general principle or unifying theme • the term proximity is still used by some members of the High Court as an umbrella term

9. Novel fact situation • was the loss reasonably foreseeable? • On a consideration of previously decided cases • what additional factors over and above reasonable foreseeability are required to establish the existence of a duty of care in the particular category of case • are there any policy factors that weigh for or against the finding of a duty of care

10. Perre v Apand (1999) 73 ALJR 1190 • Establishing a duty of care in case of pure economic loss • no majority view • four possible approaches • 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

11. Categories of cases • A number of categories can be identified from decided cases concerning recovery of pure economic loss • negligent misrepresentation • economic loss resulting from damage to property of another • failure of a professional person to perform an undertaking or service properly • economic loss resulting from defective construction of buildings

12. Continuing relevance of these categories • Following the decision in Perre v Apand • High Court is moving towards synthesising instances of pure economic loss • identification of factors which will determine existence of duty of care • may replace approach adopted in past cases • particularly cases of pure economic loss resulting from negligent acts • emphasis on features of control and vulnerability • no uniform approach by members of Court

13. Negligent Misrepresentation • First category of case involving pure economic loss in which the courts recognised the existence of a duty of care • pure economic loss resulting from negligent words

14. Hedley Byrne v Heller (1964) • no need to establish a contractual or fiduciary relationship • person giving the information must be possessed of special skill (or hold themselves out as having such skill) • assumption of responsibility by the speaker • reasonable reliance by plaintiff • no disclaimer of responsibility

15. Position in Australia • MLC v Evatt (High Court) • accepted that duty of care could arise irrespective of contract or fiduciary relationship • Barwick CJ identified features of special relationship which would give rise to duty of care

16. FEATURES OF RELATIONSHIP • speaker knows or ought to know: • trusted by recipient to give information recipient believes speaker has capacity to give • the information is of a serious or business nature • speaker knew or ought to have known that recipient intended to rely on the information • reasonable for recipient to seek or accept and rely on speaker advice • no need for recipient to actively seek the information or advice • no requirement that speaker have special skill

17. Appeal to Privy Council • speaker must carry on business of giving advice or let it be known the claims to possess special skill in the field

18. Subsequent High Court Decisions • Shaddock v Parramatta City Council (1981) • no requirement that speaker be possessed of special skill (not necessary to decide in this case) • San Sebastian (1986) • determined that reliance was the most significant element in establishing proximity • no requirement that statements made in response to request for information or advice

19. Esanda Finance Corporation Ltd v Peat Marwick Hungerfords • 1997 High Court decision • confirms approach adopted in MLC v Evatt and San Sebastian

20. Impact of decision in Perre v Apand • ? whether decision in Perre v Apand will impact on the factors relevant to the establishment of a duty of care for negligently inflicted pure economic loss resulting from negligent misstatement.

21. Fraudulent Misrepresentation • Comparison with negligently inflicted pure economic loss

22. Five Elements • a representation of fact • defendant knew representation was false or recklessly indifferent • defendant intended plaintiff to rely on the misrepresentation • plaintiff did rely on the representation • plaintiff suffered damage

23. CBC v Brown • misrepresentation of fact • defendant gave written advice that customer financially stable • defendant knew representation was false • question of fact • defendant intended plaintiff to rely on representation • not relevant that statement made to intermediary acting on behalf of a class of persons

24. effect of disclaimer • cannot exclude liability for deceit • did plaintiff rely on representation? • yes! they would have breached the contract • did the plaintiff suffer damage in fact and law? • loss was direct and foreseeable consequence of the fraudulent misrepresentation

25. Krakowski v Eurolynx • Krakowskis • plaintiffs/appellants • Eurolynx • defendant/first respondent • Mallesons (Eurolynx’s solicitors) • second respondent

26. The representation • an allegation that the disclosed instrument of lease was not the exhaustive contractual arrangement between E and the lessee • falsity of the representation • inducement • fraud by Eurolynx

27. Next Week • Pure economic loss other than by representation • economic loss resulting from damage to property of another • failure of a professional person to perform an undertaking or service properly • economic loss resulting from defective construction of buildings • Significance of decision in Perre v Apand