Seminar 10 - Pure Economic Loss PDF

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Summary

Pure Economic Loss Pure economic loss = economic loss caused by a negligent act, statement, or omission, solely inancial or economic harm, not resuling from physical damage to P's person or property (novel duty category)  As opposed to consequenial economic loss (e. P sufers some injury to person ...

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Pure Economic Loss 

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Pure economic loss = economic loss caused by a negligent act, statement, or omission, solely financial or economic harm, not resulting from physical damage to P's person or property (novel duty category) As opposed to consequential economic loss (e.g. P suffers some injury to person which results in economic loss cannot workloss of earning capacity) Courts generally reluctant to allow recovery for pure economic loss - concern re indeterminacy of class of people, time frame, amount: Ultramares Corp v Touche, Niven & Co (1931), reasonable foreseeability not a sufficient limitation Three situations where economic loss is recoverable: 1. Economic loss as a consequence of physical damage or personal injury, 2. Pure economic loss for negligent misstatements, 3. Pure economic loss for negligent acts or omissions

Difference between negligence and negligent misstatement Negligence = conduct, negligent misstatement = written or spoken words Damage caused by negligent misstatement mainly economic loss, damage from negligence more likely to be physical Negligent misstatement needs 'proximate relationship' between P and D for DOC to arise

Negligent Misstatement Duty: If a request for information is made or the defendant makes an inducing statement for the plaintiff to rely on - San Sebastian Pty Ltd (1989) No Duty: If the defendant does not know the plaintiff will receive and rely on info - Hedley Byrne [1964] D does not have to have a special skill - Hedley Byrne (1963) The plaintiff reasonably relies on the information Factors for reasonable reliance on information 1. a) Nature of subject matter - Tepko (2001) 2. b) Occasion of interchange - Tepko (2001) 3. c) Relevant positions of parties and capacity to exercise judgement - Tepko (2001) 4. d) Availability of other expert advice - Tepko (2001) 5. e) D’s control of information - Shaddock (1981) Disclaimers - Duty arises where the disclaimer accepts responsibility for the client’s use of the information - used by the client to inform a third party – defendant implicitly accepts responsibility - Derring Lane [2007] 3. D ought to have known that P will rely on advice 1. a) Did P request information? - San Sebastian (1986) 2. b) Purpose of which info was prepared - San Sebastian (1986)

PURE ECONOMIC LOSS FOR NEGLIGENT MISSTATEMENTS 

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Liability imposed where D makes statement of fact, advice, opinion, which is reasonably relied on by P causing economic loss, and D knows or reasonably ought to know that the statement will be relied on (Central to negligent misstatement is that there must be a reasonable appreciation of the purpose for which the statement is to be relied on)

Not a pre-requisite that D has some special skill  

Having a special skill is not a pre-requisite for a Duty of CareàD does not have to be in the business of giving advice: MLC v Evatt (1969) It is D’s willingness to proffer the information or advice” that is relevant in this area: MLC v Evatt per Barwick CJ

Hedley Byrne & Co Ltd v Heller & Partner Ltd (1963): 

P was firm of advertising agents, uneasy about customer's financial position, sought report from own bank with whom customers also had an account, D merchant bank provided advice over telephone and confirmed in writing, but D disclaimed responsibility for statement,

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DOC could arise in such circumstances, where D knows P is reasonably likely to rely on info (here no DOC due to disclaimer) - DOC where a person representing as having a special skill, applies that skill to P who relies on such skill – creating a 'special relationship'

HELD:

MLC Assurance v Evatt (1968) 122 CLR 556: 

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P policy holder of insurance with D, received advice from D about investment in company, retained shares and purchased more on this advice, company liquidated, lost investment Not essential that D is in the business of advice, rather consider D’s willingness in proffering info/advice

Principles of negligent misstatement; misrepresentations 1. Given the circumstances, should D have realised or did D realise that P was relying on the statement (most obvious where P asks for advice), 2. Was it reasonable for P to rely on the statement (generally reasonable where D has special skill or judgement, also consider nature of subject matter, occasion of interchange, relative positions of parties to knowledge) 3. Subject nature of the statement was serious

L Shaddock & Associates Pty Ltd v Parramatta City Council (1981): 

HELD:

P land developer purchased property after obtaining certificate from D council indicating that there were no future plans to widen road, road was widened and P suffered loss,

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had DOC to take reasonable care in supplying information, as any other person in business Affirmed MLC that D does not necessarily have to be in business of giving advice, although it will be relevant Council knew of P’s purpose in seeking info

P must show that it was reasonable to rely on the advice, in all the circumstances (MLC) ---- Reasonable reliance  

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Whether it was reasonable or not for P to rely on the information is crucial to establishing an imposition of a duty of care: MLC v Evatt Factors going into deciding whether there was a reasonable reliance include (Tepko): o Nature of the subject matter o Occasion of the interchange (did D request information?) o Identity and relevant positions of parties & capacity to exercise judgement P’s access to other expert advice.

Tepko v Water Board (2001) 206 CLR 1: 

P owned land, wanted to rezone/subdivide, needed estimate of redevelopment for bank loan, pressured Water Board D into providing estimate, was greatly overstated, high repayment but P only able to sell land for much smaller sum,

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no DOC to P – would be unreasonable to find Estimate given after sig. pressure from P, D initially denied request Approximate ‘ball-park’ figure P had access to alternative expert advice (less vulnerable) D unaware of purpose (bank loan) unreasonable for P to rely on info in all circumstances; factors going to reasonable reliance include: o Nature of subject matter o Occasion of the interchange o Identity and relevant positions of parties and capacity to exercise judgement o P’s access to other expert advice (vulnerability)

HELD:

Shaddock v Parramatta CC (1981) 150 CLR 225: 

P land developer purchased property after obtaining certificate from D council indicating that there were no future plans to widen road, road was widened and P suffered loss,

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had DOC to take reasonable care in supplying information, as any other person in business o Reliance by P is crucial – found that P requested info, and D knew P would rely on info and for what purpose, D was only person in

HELD:

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possession of info, circumstance in which info given relevant to reasonable reliance Reasonable for P to rely on Council certificate, not on phone advice by unidentified council employee

D must know, or reasonably ought to know, that P will rely on the advice --D's knowledge/ request for information   

The courts will not impose a DOC in circumstances where D does not know or could not have known that P would receive and rely on the info àeg: where P has nor requested info/advice or has not received it directly through D but another person In the absence of a request for info/advice from P to D, it must be shown that the D made the statement with the intention of inducing P to rely on it.

San Sebastian v The Minister Administering the Environmental Planning and Assessment Act (1986) 162 CLR 340: 

P (property developer) relied on plans published by city council and state planning authority, purchased property and lost money when D did not proceed with redevelopment,

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no DOC, unreasonable of P to rely on plan  Plan did not have feasibility statement as to whether plan was capable of implementation  D made no statement as to whether plan would proceed  P did not request info from D  D did not know P would rely on info - was public info, no intention to induce reliance  D did not make statement with intention of inducing P to rely and act on info (N.B. where P made no request, still DOC if D intended to induce P (or class of) to rely)

HELD:

Auditors Esanda Finance v Peat Marwick Hungerfords (1997) 188 CLR 241: 

P (finance company) loaned funds to third party, relying on accounts audited by D, P did not get accounts directly from D, third party defaulted on loan of funds,

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no DOC, generally only to immediate recipient P did not request info from D, D did not know P would receive or rely on info for a purpose likely to lead P into a transaction (no intent to induce) Indeterminacy of liability, commercial setting where P not vulnerable Purpose for which info was prepared/given out is relevant – here auditor’s report was prepared to comply with regulatory regime HC reluctant to impose DOC on auditors – McHugh J – increase in costs of auditing services from needing professional indemnity insurance, increase in auditor fees w decrease in competition and standard of services, administration of court systemextension of liability (more complex litigation), Ps in audit cases would be sophisticated groups w means to avoid risk of loss, audit info widely disseminated to third-parties-

HELD:

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indeterminate liability, creditors/ investors can efficiently absorb loss, auditor’s negligence only secondary cause of P’s loss, primary is failure of investment, complex factual issues lengthy/costly trial, causation- diff. to prove reliance years after event

Disclaimers Derring Lane Pty Ltd v Fitzgibbon [2007] VSCA 79  P was purchasing a property had employed to D to determine the GST for the purchase of the property.  D negligently over-valued the property – but the report, addressed to the vendor, contained a lengthy disclaimer Held: 

A duty of care existed despite the disclaimer – referencing logic used in BT Australia v Raine & Horne Pty Ltd: o “If the disclaimer was intended to disclaim responsibility for the consequences for the very reason it was obtained, it is reasonable for that disclaimer to be stated in clear words. The disclaimer should not be understood to exclude responsibility for damage caused to the appellant resulting from the use of valuation by the vendor which the responded had impliedly accepted responsibility.”

Statutory causes of action in Australia   

S 18 of the ACL: deals with misleading and deceptive conduct of companies (excluding financial services) Australian Securities and Investments Commission Act 2001 (Cth) s 12DA Some members of professions can limit liability (professional indemnity insurance etc): Professional Standards Act 1987 (NSW)

Australian Consumer Law s 18 A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive Australian Securities and Investments Commission Act 2001 (Cth) s 12DA A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive, or is likely to mislead or deceive Civil Liability Act 2002 (NSW) - Pt 4 Proportionate liability

Negligent Acts causing pure economic Loss

Pure economic Loss  

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A claim arises where plaintiff has suffered economic loss which is not consequent upon any physical injury to person or property. No doubt that economic loss which is consequent upon a negligently inflicted physical injury is recoverable. o Wage loss, both past and future o Medical and other expenses Issue: remoteness of damage Plaintiff must establish the defendant owed a DoC not to cause pure economic loss

Economic torts  

Distinction drawn between intentional conduct causing economic loss, and negligence conduct or words causing economic loss. Intentional torts --> proper remedy lies in 'economic' torts o Passing off o Deceit o Injurious falsehood o Intimidation o Conspiracy or inducing breach of contract

Generally, no DoC to avoid pure economic loss but liability imposed where D HAS KNOWLEDGE, OR MEANS OF KNOWLEDGE THAT p is likely to suffer loss as a result of D’s act or omission (Caltex)

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A duty of care to avoid causing economic loss may be imposed where: o Reasonable foreseeability: Defendant has knowledge or it is reasonably foreseeable that the plaintiff will be likely to suffer loss as a consequence of the act – Caltex Oil (1976). o Control: Defendants have knowledge and control - Perre v Apand Pty Ltd (1999) o Autonomy: Autonomy of plaintiff – ability to protect themselves via insurance etc. - Esso Australia [2003] o Vulnerability: Plaintiffs are vulnerable (rely on the defendants) - Perre v Apand Pty Ltd (1999)  Not vulnerable if plaintiffs (companies) are in a position to protect themselves from losses – insurance - Woolcock Street Investments v CDG (2004)

Caltex Oil (Australia) Pty Ltd v Dredge Willemstad (1976): 

P transported oil using pipeline owned by Aus. Oil Refining PL, pipeline damaged by D's dredge, P had to use more expensive means of transporting oil,

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DOC, recoverable

HELD:

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P must be known to D to be reasonably to suffer loss as a specific individual (ascertainable, not general class) – no indeterminate liability; reasonable foreseeability insufficient- C also no control/capacity over negligent act

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There are exceptional cases where D has knowledge that P individually (not member of a class) will suffer as consequence of negligence and thus owes DOC

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D liable if RF that specific individual (not general class) will suffer

Gibbs J:

Mason J:

Proximity, assumption of responsibility and reliance Bryan v Maloney (1995) 182 CLR 609  D had built a house that P purchased several years later, finding that the foundations upon which the house were built were inadequate à P was suing because the house’s value had declined Held: 

The court held that D owed a duty of care to P: o Relationship of proximity between P and D. o D assumes responsibility for the proper construction of the house and P relies on the builder o Policy reasons: finding of DOC would not create indeterminate liability, purchase of a home was one of the most important financial transactions of a person’s life + D was in a better position to avoid the risk than P.

Hawkins v Clayton (1988)  D were a firm of solicitors who kept a will for a client.  P was executor and residuary beneficiary under the will, but D failed to take steps to find P when the firm’s client diedà principal asset was a property that fell into disrepair + when P was notified, there was a substantial death duty penalty/other economic losses. Held  

A duty of care was owed to P as an executor ON PROXIMITY: characterised by “some additional element or elements which will commonly consist of knowledge reliance/dependence or the assumption of responsibility or a combination of the two”

Hill v Van Erp  D was a solicitor and P was a beneficiary under a will which was drawn, and the execution was being supervised by D.  D allowed the will to be witnessed by P (spouse of deceased), so the gift of the house to the beneficiary failed.

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P sued the solicitor, claiming D owed a duty of care to her, a third party beneficiary.

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Duty of care imposedàwhile it was not usually practice to impose duty of care on a solicitor to someone who is not their client, in accepting the responsibility, D had assumed responsibility to her client + intended beneficiary.

Held

A new approach Perre v Apand (1999): 

P farmer selling crops, D supplied seeds to grower near P’s farm, some seeds diseased, WA regulations prohibited sale of crops grown/processed within 20km of disease outbreak, P unable to sell for 5 years – D in breach pf duty to 3rd party grower, P had no control over 3rd party grower, industry legislation,

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DOC owed Approved Caltex, no general rule of DOC to not cause reasonably foreseeable pure economic loss, BUT special circumstances where recovery is permitted Policy issues of indeterminate liability or illegalising legitimate commercial activities P were members of an ‘ascertained class’ (even if large), D had specific knowledge/means of knowledge to have known who members of class were Vulnerability of P – could not have done anything, not even aware of supply of infected seed Reliance by P and assumption of responsibility by D = indicators of vulnerability McHugh J in addition to reasonable foreseeability, need to consider salient features: o Indeterminacy of liability o D’s autonomy (legitimate commercial interests) o P’s vulnerability o D’s knowledge of risk and its magnitude

HELD:

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Salient Features 1. Reasonable foreseeability of loss (this test alone is insufficient: Perre) o Once it has been established that the harm was reasonably foreseeable, the courts will move onto other factors to determine whether a duty of care exists. 2. Indeterminacy of liability (avoiding); o “If D knows or has the means to know who are the members of an ascertainable class affected by its conduct and the nature of the likely losses to members of that class, its liability is not indeterminate.” 3. Autonomy of the individual (where an individual is pursuing legitimate commercial interests, the law will not interfere --> considering conflicting duties

o

"The line of legitimacy will be passed only when the conduct is such that community cannot tolerate it."

4. Vulnerability o “If P has taken, or could have taken steps to protect itself from D’s conduct and was not induced by D’s conduct from taking such steps, there is no reason why the law should step in and impose a duty on the D to protect P from the risk of PEL.” o Reliance may be an indicator of vulnerability o Woolcock: “P’s inability to protect itself from the consequences of a D’s want of reasonable care, entirely or partially” 5. Knowledge by the D of the risk and its magnitude. o Where D has actual knowledge of the risk/consequences for an ascertainable class and it not legitimately pursuing or protecting its interest à can work in favour of imposing DoC

6. Level of Control of the Defendant Woolcock Street Investments Pty Ltd v CDH Pty Ltd (2004) 216 CLR 515 HELD  that a firm of consulting engineers who had advised the original owners and builders of a commercial building, did not owe a duty of care to subsequent purchasers à differs from Byran v Moloney because in this case, Woolcock had advised the original owners to carry out geotechnical investigations which they refused to do o Vulnerability: The court held that P was no tvulnerable to D they were commercial investors with the means of protecting themselves against loss + carrying out their own investigations prior to purchase McHugh J on Vulnerability  “In this context, vulnerability to risk means not that the plaintiff was exposed to risk but that by reason of ignorance or social, political or economic constraints, the plaintiff was not able to protect him or herself from the risk of injury.” at [80].

Johnson Tiles PL v Esso Australia PL [2003]: 

explosion at Esso gas plant, cut off supply of gas to whole of VIC for almost 2 weeks, P’s: (1) businesses (closed down) = commercial consumers, (2) domestic gas customers

= residential consu...