Week 6 Economic Loss Special Negligence (Liability for Negligent…
Week 6 Economic Loss
Liability for Negligent Misstatements Causing Purely Economic Loss
D can owe a duty of care in making statements
Hedley Byrne & Co v Heller & Partners  AC 465
An advertising firm (P) relied on information given by the D about the financial state of company with which the P was doing business with. The P undertook the business before receiving payment based on this, ultimately the business went into liquidation and the P did not receive payment. The P sought to sue the D with regards to misstatement, however the D had inserted a clause 'without responsibility', which was sufficient for the house of lords not to find them liable.
Principle of the Hedley case were first adopted in the Australian case of Mutual Life and Citizens Assurance Co Ltd v Evatt (1968) 122 CLR
(this is not a checklist of requirements to establish duty but rather factors that may or may not give rise to duty depending on the circumstances
Reliance and reasonable reliance
no statement can cause loss unless it is relied upon. If the reliance is not reasonable in the circumstances it is not reasonable to expect the D to compensate for the P loss
context of the statement and the situation it was given define the reasonableness
reliance in fact is an essential element in establishing causation, reasonable reliance is an element in establishing the existence of duty of care
Mutual Life and Citizens Assurance v Evatt
reasonable reliance - the speaker must realise that the recipient intended to act upon the information in connexion with some business matter or serious consequence. Words uttered in a social context with no thought of legal consequence cannot satisfy this
Tepko Pty Ltd v Water Board (2001) 206 CLR
The P sort advice from the D with regards to a proposed development being connected to water. The D stated that it did not like to usually give out this information. The P pursed the D for the information who eventually relented and provided an estimate. The cost was too much for the works to proceed and as a result the P could not obtain finance from the banks, who eventually took control of the P companies. It was later discovered that the connection cost was much less than the estimate provided. The P was unsuccessful in their claim, as the court determined that the D was a reluctant participant. The provisional nature of the estimate made it unreasonable to posit duty on the D.
Where the D is a professional person and the P is the D client it is not necessary to plead and prove reliance in order to establish the requisite relationship -
Pullen v Gutteridge Haskins and Davey Pty Ltd
 1 VR 27
reliance will depend on the presence or absence of skill of the D
Special skill on the part of the D has always been regarded as relevant to the question of the existence of a duty of care
Mutual Life and Citizens Assurance v Evatt (1968) 122 CLR 556
P sought investment advice from the D insurance company with regards to a company the P intended to invest in. The D negligently advised that the company was a sound investment, and the P lost money. It was held by the HC that the D owed a duty to the P with regards to giving advice. However on appeal the privy council determined that the D did not owe a duty because it did not have nor did it profess to have special skill in investment advice.
More recent decision of
Shaddock v Parramatta City Council
(1981) has moved away from Evatt's decision
D purchased land for redevelopment. The D solicitor phone the council to see if there were any proposed road developments. The council informed the D that there were not, this was also followed up with written acknowledgement from the Council. The P subsequently purchased the land. The P had actually decided to widen the road which would affect the land and its subsequent value. The P sued the D alledging loss as a result of reliance on the P advice. HC held that the D did owe the P duty and that it had breached that duty. This essentially overturned the reliance on special skill set down in Evatt's case.
Liability for negligent mis-statement is not confined to those who carry on, or profess to carry on a profession, business or
occupation involving the possession of skill and competence.
This case establishes that liability for negligent mis-statement will arise where the government authority ought to have known
that the person seeking the information would rely on that information and could suffer loss if the information was incorrect.
Government bodies which provide information for tender submissions must make sure that all such information is as accurate as possible. Failure to do so in the absence of an appropriate disclaimer could lead to liability for negligent mis-statement. This duty to ensure that information is accurate extends to all dealings which governmental authorities have with the public.
the existence of a request by the P is neither necessary nor suffice for the existence of a duty of care
San Sebastian v Minister Administering the Environment Planning and Assessment Act 1979
A request for information is certainly assists in demonstrating reliance for negligent misstatement, however it is not essential. the maker of a statement may come under a duty to take care through a number of combinations in the absence of a request.
general proposition is that if the D stand to gain financially if the P relied in the statement then that is sufficient to give rise to a duty of care - see Evatt
However there is no reported case in which the existence of the possibility of financial gain to the D has been sufficient in itself to give rise to a duty of care.
Norris v Sibberas
D real estate agents were deemed not to have a duty of care even though they received a commission
O'Leary v Lamb
D financial interests were taken to be one of the points of consideration with regards to establishing duty
Disclaimers of liability and assumption of responsibility
linked to the fact that the D may exclude liability for negligent misstatements was based on an assumption of responsibility by the P. However in Evatts case it was considered that the facts of the case will ultimately decide whether or not duty can be imposed even in light of a disclaimer
Derring Lane v Fitzgibbon (2007) 16 VR 563
P bought a commercial property for an agreed price plus GST. The D valued the property for the purposed of calculating the GST. The D gave a valuation report to the seller with a disclaimer saying that a third party cannot rely on the report. The D sued the valuer claiming that they grossly overvalued the property. The VC or appeal held that the D owed the P a duty and that the breach has caused the P loss. It was held that the disclaimer did not operate to negate the existence of a duty of care. It was held the D had knowledge as to what the valuation was for and who would be relying on it, so they could not extinguish duty through a disclaimer.
Disclaimer will not be effective were the D is the only possible source of information, as in such a case the P has no choice but to rely on the D knowledge/advice
To whom is the duty owed?
when the P is not the immediate recipient of the information given by the D, but has received it via a intermediary, the duty is often denied.
San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979
The Sydney City Council published development plans that the D developed. The P relied on the plan with regard to purchasing property, which were later dropped by the council. The P sued alleging losses. It was determined that the D did not owe a duty by the HC for a number of reasons. One was that the plans contained no feasibility statements. Because the D said the area could and would be redeveloped in accordance with the plans it was not reasonable for the p to rely on the plans, so duty could not arise.
Esanda Finance Corp Ltd v Peat Marwick Hungerfords
P lent money to a company called Excel relying on excels audit by the D. The accounts overstated Excels assets. Excel defaulted on the loan causing loss to the P. The HC held that the D did not owe the P a duty of care auditing excels assests
Vulnerability as a common thread?
is the inability of the P to protect themselves from the consequences of the D want of reasonable care which would cast the consequences of loss on the D - Woolcock Street Investments v CDG (2004).
Liability for Negligent Acts causing pure economic loss
PEL - adversely affects the P financial status through wasted expense of failure to make gain. Characterised by the absence of physical injury/damage to property.
HC allowed recovery for pure economic loss for negligent acts in 1976 subject to a restrictive test for the existence of a duty of care
Caltex Oil (Australia) Pty Ltd v The Dredge Willstad
D dredge negligently went off course and dredged through a oil pipeline owned by the P. The P has subsequently deliver oil by road at a considerable cost. The P sued for economic loss. This is known as a
action. The action proceeded against the thing that caused the damage rather than the person. The HC held that the P could recover economic loss from the D even though the P had not suffered any physical damage itself.
No single test for loss, several factors are taken in to account
The class of affected P was of a determinate size and readily ascertainable make up
Perre v Apand Pty Ltd (1999) CLR
P vulnerability in the sense of their inability to do anything to protect themselves
Perre v Apand Pty Ltd (1999) CLR
Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520
Barclay v Penberthy (2012) 246 CLR 258
employer recovered for Pure Economic Loss caused by injuries to employees
That the law of torts should not unduly interfere with the D ordinary business practices
Perre v Apand Pty Ltd (1999) CLR
Perre v Apand Pty Ltd (1999) CLR
P owned a potato farm in WA. The D supplied a new brand of potato seed to farms near the P's. The new potato's were infected with wilt. WA regulations prohibited the importation of potato's if they had been grown within 20km of a farm infected with wilt. As a result the P lost their WA market even though their potatoes were not infected. The HC found that the D owed a duty to the P, even though there was no direct relationship between the parties
Gaudron J - control mechanism was to be found in determining whether the defendant knew of ought to have know that their conduct would infringe on a legal right of the P
McHugh J - spoke to the risk of indeterminate liability and whether this would place undue burden on the D business activity, the P vulnerability to protect themselves and the D knowledge or foreseeability of the risk of harm to the P
Gummon J and Gleeson CJ- preferred to isolate the salient features which combined to constitute a sufficiently close relationship to give rise to a duty of care. which included; D had actual knowledge, D could control the location of the potato trial, P had no way of knowing about the risks and thus could not protect themselves
P inability to protect themselves, not merely the P susceptibility to loss as a result of the D conduct
once again several factors are considered
Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004)
D designed foundations for a building. Some years after the building was completed the owner sold the building to the P. The sale contract did not include a warranty to state that the building was free from defects. The P later found that the foundations desgined by the D had settled , the P sued to recover losses for buying a defective building. The case proceed as a purely economic loss. The HC held that the D did not owe a duty of care to the P in the circumstances. This was based on the P being considered not to be vulnerable.
Transferred loss cases
By allowing the claim you are merely replacing one claimant with another so there is no need for the concern of indeterminant liability.
Bryan v Maloney (1995) 182 CLR 609
HC held that the builder of a house owed a duty to a subsequent purchaser to take reasonable care in the construction of the house. The D had not damaged the house but had essentially built a house that had never been right. The P had suffered an economic loss as they had purchased the for more than it was actually worth. The HC also reached the decision that a duty was owed as the house was a permanent structure to be used by subsequent purchasers.
Woolcok has discredited this case in Qld
see text at 388 top of page if this is on the exam.
Negligent provision of services
Hill v Van Erp (1999)
HC determined that a duty of care was owed by the solicitor to ensure the will complied with formalities to ensure intended benefit