1. Anton Fagan - Aquilian Liability for Unintentionally Caused Pure Economic Loss PDF

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1. Aquilian Liability for Unintentionally Caused Pure Economic Loss 1. The ‘Core Case’ Two Golden Rules (1) If a person commits a wrong against another by breaching a duty (owed by all to all) not to cause physical harm to his patrimony (i.e. person or property) through a negligent, positive act through such an act causes the victim to suffer patrimonial loss then the wrongdoer owes the victim a duty to compensate him for the loss. (2) A positive act causing physical harm to another’s patrimony is negligent only if a reasonable person in the position of the harm causer would (a) have foreseen that the act might have caused such harm, and (b) would have refrained from doing it. Three features drawn from the rules 1. There is a distinction between harm and loss (harm may result in loss but not necessarily). 2. These rules make it a prerequisite that the person cause the harm (i.e. no harm no wrong). 3. These rules make negligence a necessary requirement. The shortcomings of these rules are illustrated in the following examples of situations where persons suffered harm without also suffering loss. Furthermore, in each of the examples, the harm was reasonably foreseeable. e.g. 1. e.g. 2.

e.g. 3.

A person suffers bruises which heal themselves and doesn’t suffer any patrimonial loss (i.e. clearly ‘harm’ without ‘loss’). A famous artist scratches a design onto someone’s car thereby clearly damaging the car but making it much more valuable. A person’s cottage is destroyed and a massive hotel built on it by accident (i.e. he now owns the hotel).

In each of these examples it is possible that there was negligence and thus a wrong committed, however a delict in the core case requires loss which clearly isn’t present. German law also distinguishes between ‘harm’ and ‘loss’ in similar ways. In that law, the important aspect of wrongfulness is that the person cause the harm. Also, for that law, the important aspect is that the harm was foreseeable.

Two Moral Implications of the ‘core case’ Two clear moral implications arise from the construction of the ‘core case’, namely; 1. AL seeks to achieve corrective justice (i.e. restoring the status quo after wrongdoing has resulted in distributional changes) between moral perpetrators and their victims. a. We must resist the urge to think that the law corrects wrongs which are patrimonial in nature (as they can be distinguished from their patrimonial effects). b. The purpose of the law is thus to rectify the patrimonial effects of moral wrongs. 2. AL has a distinctly egalitarian character because; a. The probability of liability is always the same (e.g. where a poor man and a film star both suffer harm from the same negligent conduct the wrongdoer will be equally liable to both people regardless of their wealth discrepancies) b. This is because liability distinguishes between harm and loss.

2. The ‘Peripheral Cases’ (exceptions to the ‘core case’) 1st Extension: Omission e.g. a child drowns while a person stands by and watches (i.e. the omission results in the child’s death)

The ‘Prior Conduct’ Doctrine The limitations of the ‘core case’ led to the development of the doctrine of ‘prior conduct’. 1. In the case of Halliwell v JHB, the court held following (four key rules); a. A person could commit a wrong through negligent omission b. ‘Negligent omission’ only occurs where a person has a duty to take reasonable steps to avoid harm c. There is no general duty to take such steps d. The duty only arises on the basis of prior conduct that introduces a new source of danger (rejected in Quathlamba and Ewels). After Halliwell, the courts applied the ‘prior conduct’ doctrine in various cases, but began to erode the doctrine by stretching it to avoid requiring prior conduct. 2. Thus in SAR&H v Saunders, the court imposed liability on the railway which had failed to collect two trailers which caused an accident when two busses crashed into them. The court held that there was ‘prior conduct’ because the railway had allowed the trailers out of their possession knowing where they would be left (i.e. on the street). This was clearly a stretching of the notion. 3. In Admin v Preston, the Administrator made a cutting in the knowledge that a bridge would be built over it. A train coming past startled cattle that then ran off a cliff. The court held that making the cutting constituted ‘prior conduct’ (another clear stretching). 4. In Silva’s Fishing v Maweza, the court held that there were circumstances unconnected with ‘prior conduct’ that could give rise to a duty to act without negligence. 5. In Minister v Quathlamba, the court (invoking Silva’s Fishing) held that a person in control of a hazard was under a duty to take reasonable steps to avoid harm. This was despite the fact that the hazard arose through no fault of the person concerned (i.e. a veld fire). This case also provided that the liability could arise even though there was no positive conduct. 6. In Minister v Ewels, the court affirmed the first three rules in Halliwell, but held that the duty does not only arise in (a) situations of prior conduct, and (b) where the person has control of a hazard, but that the existence of such a duty depends on the legal convictions of the community. Thus, in order to achieve liability for omissions; the two ‘golden rules’ need to be expanded by adding two further rules. These are the rules required; (3) Every person owes every other person a general duty not to cause physical harm to others through their own negligent positive acts. (4) In certain exceptional circumstances, one may owe a duty not to cause harm through negligent omissions. The existence of such a duty is based on the legal convictions of the community.

2nd Extension: Emotional Shock Core Case The case of Bester v Commercial Union is the classic ‘emotional shock’ case because it illustrates the most extreme features in each category. In that case, one brother was run over and killed in full view of the other. 1. The harm caused was death (i.e. the most serious form of harm). 2. The relationship between the victim and the plaintiff was the closest (i.e. immediate family). 3. The proximity of the plaintiff to the accident was as close as possible (i.e. the plaintiff was essentially party to the accident). The major difficulty in ‘emotional shock’ cases is determining where to draw the line in deviations from the classic case (i.e. ‘minor harm’, ‘distant relationship’, and ‘no proximity’ and what about where X is injured by his own negligence; should he be liable to people who saw it?). The Bester case rejected the prevailing rules that required the victim to (a) suffer physical harm or (b) have been in personal danger. Instead the court held that the harm must simply have been reasonably foreseeable to give rise to liability. In the more recent case of Barnard v Santam however, the court held that the ‘foreseeability criterion’ was alone not sufficient to limit liability and liability could be limited on ‘policy grounds alone’. 3rd Extension: Product Liability The third extension deals with the question as to when a manufacturer will be liable to the ultimate consumer for harm caused despite the absence of a contractual nexus (or even a contractual chain). In the cases of Lennon and Cooper the courts simply applied the normal principles of aquilian liability (i.e. ‘was the manufacturer negligent?’). The CPA however alters this situation dramatically as it now governs product liability. The CPA imposes strict liability (i.e. no fault) on the manufacturers of goods which cause harm to the ultimate consumer provided that one of the following five conditions is met; 61(1) The harm is caused by; a. Unsafe goods b. Product failure c. Defect d. Hazard e. Inadequate warnings 61(2) There are certain defences that the producer may raise; a. Harm arose due to compliance with public regulations b. The defect (a) didn’t exist when supplied, or (b) is wholly attributable to compliance with instructions from previous supplier. c. The supplier couldn’t reasonably have discovered the defect given its role in the process. d. The claim had prescribed

4th Extension: Pure Economic Loss (negligently caused) In Schultz v Butt, the court found Schultz guilty of ‘unlawful competition’. Our law clearly recognises ‘lawful competition’ (i.e. the intentional infliction of pure economic loss on ones competitors) and this finding illustrated that there is a residual category of liability for causing pure economic loss (i.e. as this case didn’t fall into the recognised types such as ‘passing off’ etc.).

Administrateur Natal ‘Pure economic loss’ refers to patrimonial loss which is unrelated to physical harm. This type of loss is usually the result of negligently false misstatements. This type of claim poses a problem to the core case because it clearly involves ‘loss’ but there is no evidence of ‘harm’ and it is the ‘harm’ which provides the justification for the action. The most important case for PEL is Administrateur Natal v Trust Bank where Rumpff identified the following five propositions; 1. Pure economic loss is in principle actionable under the aquilian action. 2. The wrong required for such a claim will only be present where the ‘wrongdoer’ owed the victim a duty not to act negligently. 3. This duty is not a general duty but there may be particular duties of that kind in certain circumstances. 4. The existence of such a duty depends upon policy requirements (i.e. the ‘reasonableness of imposing liability’). 5. It is generally not possible to set out rigid rules but in particular situations it is possible to say in advance that policy considerations preclude the imposition of liability (i.e. judicial decisions). These are ‘exclusionary reasons’. These five propositions were made in obiter (as the court didn’t impose liability) but are immensely important because (a) they were the first time that the AD had unequivocally endorsed these principles, (b) in subsequent cases they were treated as ratio, and (c) they have not yet been rejected. History of the Doctrine The decision in Administrateur Natal (1979) was not ‘out of the blue’ as each of these propositions had been endorsed by the AD previously. The significance of Administrateur Natal is that it was the first time all five were endorsed unequivocally. The history of the doctrine proceeded as follows. 1. In the Cape v Fischer (1886) the court held that AL was ‘ not restricted to physical harm’ (clear endorsement of proposition 1). 2. In Perlman v Zoutendyk (1934), the CPD reiterated Fischer without referring to the case. The court added that liability can only be imposed for the breach of a duty (clear endorsement of proposition 2). 3. In two later cases, the court held that the existence of a duty depended on whether there was a special relationship between the causer and sufferer of ‘pure economic loss’. 4. In Herschel v Mrupe (1954), the AD had the opportunity to shed light on the issue which it chose not to do (as the plaintiff would fail regardless of the truth/falsity of proposition 1). - Fagan: the defendant was not negligent and thus it is not necessary to decide the T/F of proposition 1. - Schreiner, Hoexter, van den Heever: There was no duty not to be negligent and thus it is not necessary to decide the T/F of proposition 1. However the court did express that if (1) = T (i.e. PEL is in principle claimable), then (2) must be T (i.e. the wrong can only arise from a breach of duty not to act negligently), and (3) must also be T (i.e. there is no general duty to act without negligence). - Schreiner in fact went further by accepting that if (1), (2) and (3) = T then (4) must also be true (i.e. the existence of this duty will depend on policy considerations).

5. Between Herschel and Administrateur, the court said nothing new about propositions (1) – (4), however in Union Government v Ocean Accident, and Hamman v Moolman the court laid down exclusionary rules regarding situations where liability would never be imposed (i.e. implicitly accepting part of proposition 5). (1) In Ocean Accident, the court held that ‘relational economic loss’ is not actionable in our law, and (2) In Hamman the court formulated an exclusionary reason against ‘negligent misrepresentation’. 6. Three high court decisions unequivocally endorse propositions (1) – (3). 7. Then in 1979 (Administrateur Natal) the AD takes the opportunity to clarify the law 8. In the 37 odd post-Administrateur cases of the AD, none have rejected any of propositions (1) – (5). (1) 14 affirmed that the duty required is one of ‘care’ and ‘not to be negligent’ (i.e. endorsing proposition 2). (2) 4 cases clearly endorsed proposition 4 (i.e. ‘legal convictions’) although there was some disagreement over this in other cases. 9. In Lillicrap v Pilkington, Lillicrap owed professional services to Pilkington which were performed negligently causing Pilkington ‘pure economic loss’.1 (1) The court held that a breach of contract is not automatically wrongful in a delictual sense. (2) Liability will only be imposed for negligently caused PEL when there are positive policy considerations that require it (i.e. the plaintiff must persuade the court that he should have a remedy). (3) In this case the plaintiff fails because there are various policy considerations against the concurrence of delictual and contractual liability; i. Delict would serve to reinforce the law of contract ii. Anomalous that the ‘fault’ standard should be determined in a contract iii. Extending liability here would undermine provisions which parties considered necessary for their protection. 10. In Bayer v Frost the AD rejected the exclusionary rule in Hamman v Moolman that pre-contractual misstatements can never constitute a delict (i.e. overruled an ‘exclusionary rule). 11. In Indac Electronics, the court found that a bank can be liable to the owner of a cheque. 12. In Telematrix v ASA the ASA caused Telematrix PEL by negligently refusing to allow its advert onto the air. The AD found that no duty was owed by the ASA not to act negligently. The court also made two important findings regarding proposition 5. (1) The court accepted the idea that we can have exclusionary rules in our law (i.e. it is not true that there no fixed categories of liability). (2) The court identified one category that is excluded from liability, namely adjudicative decisions (i.e. ER in respect of adjudicative bodies). i. Policy considerations require that they be immune to claims for negligently caused PEL. ii. This ER was also not ‘out of the blue’ (as it affirmed the decision in Matthews v Young and clarified the uncertainty from Knop v JHB). 13. In Steenkamp v Tender Board the court created both a general and a particular exclusionary rule; (1) There is a general presumption that liability for NPEL will not attach to administrative duties (as these are covered by Administrative law). (2) There is a particular rule that tender boards will not be liable for NPEL caused by its decisions to award tenders; i. This would undermine administrative law remedies ii. One generally doesn’t impose liability for the wrong exercise of a discretion 1

Clearly where a breach of contract causes physical harm there will be a delict (unclear where PEL).

iii. Imposing liability would have a ‘chilling effect’ on the tender board’s efficacy 14. In Two Oceans the court held that where a plaintiff was ‘in a position’ to protect himself from PEL through a contract; no delictual duty not to cause NPEL will exist. (1) In Lillicrap the court formulated the ER only in respect of ‘professional service contracts’ thus this appears to go much further (i.e. doesn’t even necessarily requires a contract to exist between the parties). 15. In Fourway v Road Agency the plaintiff suffered NPEL. This will only be actionable where there is a duty not to cause NPEL. (1) The court held that such a duty did exist (and assessed policy considerations to determine ‘wrongfulness’ which is BoD); i. There is no question of indeterminate liability in this case (i.e. single plaintiff and finite loss) ii. The plaintiff is not in a position to protect itself through contract iii. There is no extra duty imposed (i.e. there already exists a duty not to drive negligently) (2) In Ocean Accident the court provided the ER that PEL could not extend to ‘relational loss’ thus Fourway appears to overrule it. (3) Fagan argues that it does not because it doesn’t do so explicitly Deeper Analysis The question is thus how we ought to accommodate PEL doctrinally (i.r.o. the ‘core case’). (1) Fagan argues that this is possible because of two aspects of the core case; a. Non-patrimonial harm is distinguished from patrimonial loss. b. Non-patrimonial harm needs to be foreseen but patrimonial loss does not. (2) The aim of the law of delict is to undo the harm by addressing the loss (corrective justice). (3) Fagan suggests that in PEL, aquilian liability does not have the same ‘corrective moral character’. (4) Reconciling PEL and the ‘core case’ a. Wherever we have PEL, the underlying basis for liability is non-patrimonial harm (i.e. non-physical harm to property through the deprivation of rights to it) which is covered by the aquillian action. (5) In Mukheiber v Raath the court labelled the case as PEL. a. However the negligent actions of the doctor caused both patrimonial and non-patrimonial harm (i.e. infringement of autonomy) and it was arguably the latter that went to the heart of the doctors wrongdoing (i.e. if somehow the doctor had saved the couple money he would nevertheless clearly have acted wrongfully) b. Fagan argues that this is an implicit acceptance that liability for PEL is founded on non-patrimonial harm.

3. Vicarious Liability (1) We must distinguish vicarious liability (VL) from independent contractor liability. a. The relationship between the contractor and the hirer is less intimate than the employment relationship. b. The only way to hold the hirer liable is directly (i.e. prove all elements) c. In Charaprops a person suffered harm by slipping on cleaning liquid in a mall. The plaintiff sues both the mall-owner (on VL) and the cleaning contractors. The minority argued that some duties are non-delegable however the majority rejected this. Thus VL in our law does not include contractors. d. Fagan questions the logic of holding a contactor liable on the basis that his delict was dependant on a contractual breach. (2) Vicarious Liability a. The test purportedly laid down in Rabie (‘intention/connection’ test) provides 1. If the acts were done solely for the employees own interests they will fall outside the ‘course and scope’ requirement, unless 2. Despite being solely for his own interest, they were sufficiently closely connected between the employer’s business/purpose they will pass the C/S requirement. b. This test is endorsed in Rabie but 1. The minority endorses it and applies it (thus obiter) 2. The majority endorses it but does not apply it (thus obiter) c. Certain pre-Rabie cases expound the ‘discharge of duty’ rule which provides 1. An employee always has both (a) work-defining duties (WD), and (b) manner-of-work-defining duties (MD). 2. An employee that is fulfilling WD is presumptively within the C/S requirement and will not fail this requirement (allowing his employer to escape liability) simply because he breaches his MD’s. d. Indeed in Feldman v Mall where the employer’s driver was returning the vehicle to the garage, the disagreed over whether the driver had breached WD or MD (i.e. there is room for reasonable disagreement over which category the duties fall into) e. In K v Minister the court applied the Rabie test (‘intention/connection’) 1. Subjective: actions were clearly for their own interests (thus they are presumptively outside the C/S requirement) 2. Objective: There was a sufficiently close connection because; 1. Breach of Duty: (simultaneous commission/omission) the omission (failure to protect) is relevant for VL. 2. Exploitation of Trust: If they weren’t policemen (i.e. had a duty to protect her) she wouldn’t have made herself vulnerable to them. f. Problems with BoD: 1. The greater the breach (or the more duties are breached) the closer the connection (...