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Torts LWB133Week 6 Semester 2 ,2000

Part VI - Economic Loss

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PART VII - ECONOMIC LOSSPART VII - ECONOMIC LOSS

� SECTION 1– Negligent and Fraudulent Misrepresentation

� SECTION 2– Pure Economic Loss Other than by

Misrepresentation

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Novel Categories of Negligence

� cases not clearly covered by precedent– examples

• nervous shock• pure economic loss• public authorities• non-feasance

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Negligence Action

�Three elements– duty– breach– damage

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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

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What is pure economic loss?What is pure economic loss?

� it is not physical damage� it is not economic loss which is

consequential on physical damage

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POLICY CONSIDERATIONSPOLICY 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

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Developing approach of the Developing approach of the High CourtHigh 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

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Novel fact situationNovel 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

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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

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Categories of casesCategories 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

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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

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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

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Hedley Byrne v Heller (1964)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

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Position in AustraliaPosition 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

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FEATURES OF RELATIONSHIPFEATURES 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

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Appeal to Privy CouncilAppeal 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

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Subsequent High Court DecisionsSubsequent 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

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Esanda Finance Corporation Ltd v Esanda Finance Corporation Ltd v Peat Marwick HungerfordsPeat Marwick Hungerfords� 1997 High Court decision� confirms approach adopted in MLC v Evatt

and San Sebastian

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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.

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Fraudulent Misrepresentation

�Comparison with negligently inflicted pure economic loss

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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

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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

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� 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

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Krakowski v Eurolynx

�Krakowskis – plaintiffs/appellants

�Eurolynx– defendant/first respondent

�Mallesons (Eurolynx’s solicitors)– second respondent

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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

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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