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PURE ECONOMIC LOSS

What is pure economic loss? Pure economic loss is economic loss suffered by the plaintiff, which is not consequential upon injury to the plaintiff or damage to the plaintiffs property. OR Pure economic loss is economic loss, which does not flow from damage to person or property.

Two distinct categories of action are identified by the courts: 1. Negligent acts leading to pure economic loss: and 2. Negligent statements leading to pure economic loss Pure economic loss: Early Developments Earlier cases restricted claims for pure economic loss to instances where misrepresentation was fraudulent or where a duty arose from breach of statute, contract or fiduciary obligation Palsey v Freeman (1789); Norton v Asburton [1914] The policy basis: the fear of imposing liability "in an indeterminate amount for an indeterminate time to an indeterminate class" Limited recognition of a duty of care for negligent advice leading to economic loss: Hedley Byrne Co Ltd v Heller Partners Ltd [1964] negligent misstatement causing pure economic loss. The Facts: Bank gave a reference to the plaintiff about the financial position of the banks client. The plaintiff suffered financial loss through entering a contract with the client in reliance on the banks reference. The Decision: Bank was held to be negligent in giving a credit reference that caused loss. There must be an establishment of a special relationship created between the parties, thus it creates the duty of care owed. If someone possessed of a special skill undertakes quite irrespective of contract to apply that skill for the assistance of another person who relies on such skill, a duty of care will arise per Lord Morris Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (1970) The Facts: The defendant MLC, a substantial shareholder in HG Palmer Ltd. MLC circulated its policyholders (including Mr Evatt) suggesting that they invest in HG 1

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Palmer Ltd. At the time the advice was given HG Palmer were in serious financial trouble eventually going into liquidation causing Mr Evatt loss of his investment. The Decision: The Privy Council (House of Lords hearing an overseas appeal) restricted the application of Hedley Byrne by drawing a distinction between the liability of persons gratuitously passing on information and those who are in the business of giving advice of the kind given. The plaintiff lost his case. The result may have been different if MLC had been a stockbroker. The main ground for limitation was that it was only possible to fix an appropriate standard of care by reference to the business or professional skill necessary to give the appropriate advice (The emphasis seemed to be on advice provided by someone possessed of the a special skill)

In establishing a duty/standard of care, Lord Reid stated: Plaintiff must be trusting or replying on the defendants advice The defendant must know or have reason to know of that fact The circumstances of the case must make reliance reasonable

Negligent Misstatements In general D is liable for negligent advise/information that is provided to P which P relies and suffers economic loss. Shaddock v Parramatta CC (1980) Council liable for negligence misstatements. The Facts: The plaintiff had applied to the council for a certificate as to the possible widening of a road, which would affect a property the plaintiff proposed to buy. The plaintiffs agent telephoned the council to be informed that the land was not affected and this was later confirmed by an official certificate from the council. The court pointed out that the telephone information would not have rendered the council liable. The written information however rendered the council liable because it knew that the plaintiff was likely to act on the basis of the information. The Decision: The court held that a person would be liable for negligent misstatement where the advice is given on a serious business occasion from a person with the professional skills to do so. Also, the High court held that a duty of care existed in relation to the provision of information of this caliber. San Sabatian Pty Ltd v Minister Administering Environmental Planning (1986) proximity in establishing a duty of care, therefore pure economic loss resulting from a negligent statement can be claimed. The facts: Plaintiff purchase land in reliance on a scheme adopted by the council. The scheme was abandon and the developer suffered a financial lost.

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The Issue: Whether Minister and the Sydney City Council liable for the negligent preparation by the State Planning Authority and publication by the Council of a redevelopment plan (scheme) containing representations in reliance upon which developer had acquired land and sustained a loss? The Decision: The duty of care in relation to statements has been extended beyond statements made to a particular person for a particular purpose and even beyond statements made to a third person for the known purpose of communication to the person who sustains the loss. There are circumstances in which the maker of a statement owes a duty of care to a person who reasonably relies on the statement although the statement was not made to that person either directly or purposely through a third person Where pure economic loss results from a negligent statement, the element of reliance plays a prominent part in the ascertainment of a relationship of proximity between the plaintiff and defendant and therefore the ascertainment of a duty of care. Esanda Finance v Peat Marwick (1994) Reliance on information that was not issued to the recipient does not create a duty of care. The Facts: In reliance upon the audited accounts, the plaintiff entered into transactions whereby it lent money to companies associated with Excel, accepting a guarantee from Excel, and purchased debts from Excel. The transactions resulted in loss to the plaintiff by reason of Excels financial position. The Decision: High Court held that the D did not owe the P a duty of care because there had been no request for information or intention to induce the financier to act upon the accounts. The Issue of Skill Shaddock v Parramatta CC(1980) With all respect I find it difficult to see why in principle the duty should be limited to persons whose business or profession includes giving the sort of advice or information sought and to persons claiming to have the same skill and competence as those carrying on such a business or profession, and why it should not extend to persons who, on a serious occasion, give considered advice or information concerning a business or professional transaction. (Gibbs J in Shaddock) The Conditions Special relationship between P and D: such a relationship would not be found to exist unless, at least, the maker of the statement was, or ought to have been, aware that his advice or information would in fact be made available to and be relied on by a particular person or class of persons for the purposes of a particular transaction or type of transaction. Mutual Life & Citizens' Assurance Co. Ltd. v. Evatt (discussed previously in Pure economic loss: Early Developments)

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If the representor realizes or ought to realize that the representee will trust in his special competence to give that information or advice; If it would be reasonable for the representee to accept and rely on that information or advice; If it is reasonably foreseeable that the representee is likely to suffer loss should the information turn out to be incorrect or the advice turn out to be unsound

ADVICE versus INFORMATION

Although the giving of advice must always necessarily require an exercise of skill or judgment, and the giving of information may not necessarily do so, a person giving information may be so placed that others can reasonably rely on his ability carefully to ascertain and impart the information. The CALTEX PRINCIPLE Property damage may constitute the basis for the claim in pure economic loss: before Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. it appeared to have been established that a plaintiff who sustained economic loss which resulted from loss or damage negligently caused to the property of a third person was not entitled to recover damages, as seen in Caltex Oil v The Dredge Willemstad (1976) Pure economic lost suffered by plaintiff due to damage to 3rd party property. The Facts: there was no physical damage to the property of the plaintiff but damage was caused to the property of a supplier of raw materials to the plaintiffs production plant. The damage was to a pipeline across Botany Bay conveying oil products to the plaintiffs storage facility. The defendants were well aware of the pipeline and had charts and sophisticated navigation equipment to ensure that no damage occurred. Even so the pipeline was damaged causing the plaintiff to use trucks to transport the products by road to its storage facility at an increased cost. The Decision: The plaintiff succeeded on the basis that there existed between the plaintiff and the defendant a relationship of proximity arising from the defendants knowledge of the potential harm to the plaintiff. As pointed out the notion of proximity was not new. It was first mentioned by Lord Atkin, however the courts did not immediately take up the idea, as it was at the time more convenient to develop the law along the basis of the defendants ability to foresee damage to his or her neighbour.

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Perre v Apand (1999) (HC) Proximity was overlook with the principle of vulnerability, as defendants were unable to protect themselves. The Facts: D introduced plant disease onto land of one farmer in SA by supplying infected seeds for planting; WA regs prohibited import into WA of potatoes grown within 20 km of land affected last 5 years. The plaintiffs were involved, in various ways, in potato growing on such land, and claimed to suffer financial loss The Issue: The issue is whether the defendant who caused harm owed a duty of care to all or any of them The Decision: The justices abandoned proximity as the sole basis of identifying a duty of care and took a number of individual approaches the most notable being the plaintiffs vulnerability and inability to protect themselves. Proximity however still continued a potential test. The plaintiffs were successful. Christopher v MV Fiji Gas Knowledge of pure economic loss must be known by defendant. The Facts: The members of a fishing crew who suffered loss of earnings through damage to the fishing vessel on which they were employed were found to have no cause of action in negligence against the person who damaged the boat. The Decision: This case supports the stringent test of the knowledge of the plaintiffs circumstances required of the defendant in relation to pure economic loss from negligence.

Other Situations of Pure Economic Loss

Bryan v Maloney (1995) Builders have a duty to future owners of a defectively built structure, not just to the initial purchaser. The facts: A Builder built a house for the initial owner, which had footing defects. A subsequent owner brought the house and the structure failed due to the defect. The Decision: It was held by the High Court that a builder owed a duty of care to the second purchaser of a house he had constructed previously. The relationship of proximity was found in the continued existence of the house, which the defendant ought to have known to be likely to cause economic loss to a subsequent purchaser if not properly constructed ( Previously stated in Products liability) It was not open to the trial judge or the Full Court to find that the owner relied on the builder, or to infer reliance. There was no evidence that she knew the identity of the builder before deciding to purchase. Nor was there evidence that she inquired whether the house had been built by a qualified builder The owner can recover damages for pure economic loss only if she establishes a sufficient relationship of proximity between the builder and the owner so as to give rise to a duty of care on the part of the builder not to cause such economic loss

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It is difficult to see why, as a matter of principle, policy or common sense, a negligent builder should be liable for ordinary physical injury caused to any person or to other property by reason of the collapse of a building by reason of the inadequacy of the foundations but be not liable to the owner of the building for the cost of remedial work necessary to remedy that inadequacy and to avert such damage Hawkins v Clayton (1988) The Facts: Failure to notify executor of the death of testatrix substantial fine imposed as a result of death duties The Decision: The tort duty of care was a complete replacement for implied duties of care arising under the contract. Whereby, the reliance on a contractual basis was rejected and replaced with the duty of care of the defendant to take reasonable steps to inform the executer of their legal right and appointment. Van Erp v Hill Failure of solicitor to ensure that spouse of beneficiary did not witness execution of will with resultant economic loss to P.

SUPERVISION & CONTROL OF OTHERS

This involves 2 duty situations: 1. Duty to control others to prevent damage to 3rd parties. 2. Duty to protect others under Ds control. In general the common law does not impose a duty to control the actions of others: No duty arises simply because one can foresee the likely risk of injury from conduct of another Parents cannot be generally held liable for the conduct of their children. However where D is shown to have parental control D has a duty to exercise reasonable care to prevent the child from inflicting damage on others. Whether D has exercised the appropriate level of care is a question of fact Smith v Leurs The Facts: Parents entrusted their son with a weapon, owed a duty of care to other persons based on their special relationship of control over the boy, However, they seek assurance that he wont use the weapon outside the house, thus no duty for injuries outside the home. Teachers and school authorities may also have a duty of care with respect to the activities of the children in their care Police and Government authorities: - Hill v Chief Constable of West Yorkshire (Failure to control criminal behaviour; No duty on the grounds of policy) Police held no duty of care to members of the public apprehend a particular criminal due to policy considerations by High Court. The duty to control others: Children Geyer v Downs (school kid hit with softball bat before school school guilty because they were there) No recognition of a parents duty as such to look after a child. 6

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Robertson v Swincer (4 year old hit by car while parents talking to friends contributory negligence? Parents owe duty of care? The prospects of a parents assets being at risk because of a momentary failure of supervision judged by a court against an objective standard of reasonable care has alarming personal implications for parents and disturbing implications for society generally Depends on facts Circumstances Reasonably Foreseeable Supervision of Others: The Issue of Liability Liability may arise where there is a relationship between the custodian and the victim which exposes that person to a particular risk of damage in consequence of that escape which is different in its incidence from the general risk of damage from criminal acts which he/she shares with all members of the public Swan v South Australia The parol board was under a duty once informed about the conduct of the prisoner on parol. Public Authorities Part 5 of the Civil Liability Act (Sections 40 to 46) Discussed in Defective structures under Councils & Statutory Authorities. Section 42 sets out the principles to determine duty of care exists or has been breached (ie. financial and other resources reasonably available, allocation of resources, broad range of its activities, and compliance with the general procedures and applicable standards) Section 43: act or omission not a breach of duty, unless it so was unreasonable that no authority having the functions in question could properly consider it as reasonable. Section 44: Removes the liability of public authorities for failure to exercise a regulatory function if the authority could not have been compelled to exercise the function under proceedings instituted by the Plaintiff. Section 45: Restores the non-feasance protection for highway authorities taken away by the High Court in Brodie v Singleton Shire Council; Ghantous v Hawkesbury City Council (2001) 206 CLR 512

When a statute sets up a public authority, the statute prescribes its functions so as to arm it with appropriate powers for the attainment of certain objects in the public interest. The authority is thereby given a capacity which it would otherwise lack, rather than a legal immunity in relation to what it does, though a grant of power may have this effect when the infliction of damage on others is the inevitable result of its exercise There is, accordingly, no reason why a public authority should not be subject to a common law duty of care in appropriate circumstances in relation to performing, or failing to perform, its functions, except in so far as its policy-making and, perhaps, its discretionary decisions are concerned (per Mason J in Sutherland Shire Council v Heyman) 7

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Public Authorities & Rule of Law Applying the same rules of civil liability to the actions of public authorities or corporations. The rationale: No legal or natural person is above the law. The difficulties: The rationalisation and provision of public utilities and community facilities necessarily distinguish public corporations from ordinary citizens. Basic concepts: Breach of duty Breach may be act (misfeasance) or omission (nonfeasance) *Not every non-feasance provides basis for liability. Negligent omissions are actionable Mere/neutral omissions are not actionable unless the D is under a pre-existing duty to act. South Tweed v Cole Powers and Duties Duty Obligation to act. The statutory provision/function is cast in mandatory terms. Once content of duty is determined, the question of breach is a question of fact. Breach duty attracts liability. Power Statutory function cast in permissive terms. Confers on the power holder a choice to act in a particular way. Failure to exercise choice may not be illegal. Power = Choice (Statute use of the word may) Duty = Obligation (Statute use of the word shall) PUBLIC AUTHORITIES: The Planning & Operational Dichotomy Planning decisions of public authorities as based on the exercise of policy options or discretions and involving or dictated by social or economic considerations are in general non-reviewable and would not provide the basis for a duty The distinction between policy and operational factors is not easy to formulate, but the dividing line between them will be observed if we recognise that a public authority is under no duty of care in relation to decisions which involve or are dictated by financial, economic, social or political factors or constraints Operational decisions by which policy decisions are implemented are however subject to the duty of care, as seen in, L v Commonwealth (sexual abuse in prison, D held liable for operational failures)

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Parramatta CC v Lutz (1988) failure to order the demolition of building Ps property catches fire (Discussed in Defective structures under Councils & Statutory Authorities.) The Facts: Plaintiffs complained to council about a vacant house next to hers. She complained that if a fire broke out it could be a risk to her property. Council served a notice to the owners of that house that if the problem wasnt rectified in 60 days, the council will intervene. 60 days passed and council did not intervene, a fire broke out and the plaintiffs house was destroyed. The Decision: The council was held liable in negligence to the plaintiff. The courts held that the council was negligent in the exercise of statutory powers and the basis of the plaintiffs detrimental reliance of the council. In other words, the council had moved from the discretionary into the operational area. Intra Vires + Policy = Not actionable Ultra Vires + Policy = Actionable Not Policy but operational = Actionable