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General Negligence - Duty of Care - Pure Economic Loss & Negligent…
General Negligence - Duty of Care - Pure Economic Loss & Negligent Misstatement
Two types of economic loss
Consequent - result of injury or property damage - flows from breach
Pure
Weller v Foot and Mouth Disease (1965) - Weller was an agricultural auctioneer - negligent release of foot and mouth had huge impact on his business - epidemic meant he had no animals to auction - courts refused claim as Weller's financial loss did not flow directly from breach - farmers would be able to claim for cows owned etc.
Only loss treated as a separate category when establishing duty of care
Policy concerns
Floodgates
Fraudulent claims
Crushing liability
Danger of interfering with rules of contract (especially with privity rule in the case of three parties)
Danger of conflicting duties (where three parties)
Need for flexibility in future decisions
Pure economic loss - relationship with contract law
Different approaches taken by judges
Hedley Byrne v Heller (1964) - no contract but close relationship based on the facts - the closer it is to a contract the more likely to find a duty
Williams v Natural Life (198) - where there is no contract to rely on it is the role of tort to find a remedy where needed (failed on facts)
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank (1986) - where there is an existing contract should just use that
Henderson v Merrett (1995), Lord Goff - judges shouldn't be influenced by whether there is a contract or not
Pure economic loss - caused by an act or statement?
If caused by an act then there is no claim
General rule - Spartan Steel v Martin (1973) - electricians working on public road - severed cable and power loss to steelworks - allowed claim for property damage but couldn't claim for what they might have done while the power was down - Denham pointed out that they should have been insured - policy considerations of opening the floodgates and crushing liability
Distinction between damage and defect - if inherently defective it is a contractual issues, unless it causes personal injury
Donoghue v Stevenson
Murphy v Brentwood DC
Complex structure argument - allowed during expansionist period but not now
Dutton v Bognor Regis (1972)
Batty v Metropolitan Property (1978)
Anns v Merton (1978)
One 'exception' - Junior Books v Veitchi (1983) - defendant hired subcontractor to do work on factory floor - defective - no contractual relationship and was only a defect - but high degree of reliance led to quasi-contractual closeness - claim allowed
Muirhead v Industrial Tanks (1986) - example of distinguishing decision in Junior Books v Veitchi
If caused by a statement then may have a claim if can prove duty of care - Hedley Byrne v Heller (1964)
Negligent statements would normally result in pure economic loss - if the negligent statements cause physical harm then the normal rules of Caparo apply
Perrett v Collins (1998) - claimant assembled plane - defendant negligently certified it as fit to fly - personal injury
Clay v Crump (1964) - negligent architect - house wall collapsed and injured claimant
Tests for establishing duty
Two party relationship - Hedley Byrne v Heller (1964) - advertising contract - asked for reference from client's bankers to make sure they were good for the money - bank said they were good up to 100k - went into liquidation - 17k unpaid - claim failed on the facts (bankers had a disclaimer), but tests established
Reasonable reliance (Lord Reid)
The claimant relied on advice given by the defendant (proximity)
It was reasonable for the claimant to rely on this advice (fair, just and reasonable)
Factors to consider
Skill of the defendant - the greater the skill, the more reasonable it is to rely
Chaudrey v Prabhakar (1989) - obiter - between friends - helped friend buy car - bad car - lost value - succeeded on basis that he had held himself out as having skill
Esso Petroleum v Mardon (1976) - if it is their line of work - doesn't have to be in the course of work - bought company and asked person who had worked there how much petrol he would sell
Skill/knowledge of the claimant
Stevenson v Nationwide (1984) - similar skill levels
Yianni v Edwin Evans (1982) - claimant had lower skill levels - reasonable to rely
How formal the situation is
Chaudrey v Prabhakar (1989)
Lejonvarn v Burgess (2017) - advice between neighbours on landscaping - gave advice as architect
The defendant knew, or ought to have known, that the claimant was relying on his advice (foreseeability)
Assumption of responsibility
Williams v Natural Health Life (1998) - health food company - provided info that potential franchisees relied on - lost money - no assumption of responsibility of reliance - had never even met them
Henderson v Merrett (1995) - responsibility found - managing agents for certification of names underwriting insurance contracts - lost lots of money - negligent advice - responsibility found for advice and suitable investment - invited them and did things in their name
Customs and Excise v Barclays Bank (2006) - Barclays let wanted person withdraw money without freezing their accounts - no voluntary responsibility - only compulsory court order
Special relationship
Not really a test but is used to describe a relationship where...
The claimant has reasonable relied on the defendant's advice, or
The defendant has assumed responsibility for giving advice to the claimant, or
It is fair, just and reasonable to impose a duty of care in all the circumstances
White v Jones (1995) - Lord Nichols - father changed mind and told solicitor to put daughter in will - died before amendment - daughter sued for inheritance - successful - no reasonable reliance or assumption of responsibility, so found fair on basis of relationship - foreseeable for solicitor that this could happen, so should have amended earlier
White v Jones (1995)
Three party situations
Caparo v Dickman (1990) - where advice is given by the defendant to a third party and the third party passed on the advice to the claimant
Defendant must know that their advice will be communicated to the claimant
Defendant must know the exact purpose to which the claimant is going to use the advice
Defendant must know that the claimant is going to rely on it without independent advice
The purpose to which the claimant uses the advice must be one that it is reasonable to expect the defendant to protect the claimant from
Facts of case - defendants were auditors - produced accounts for company - Caparo was a shareholder who relied on the accounts to launch a takeover - company was actually operating at a loss - sued accountants - failed on last three criteria - advice was not prepped specifically for him
Applications
Al-Nakib Investments v Longcroft (1990) - defendants not under duty even though shareholders relied on their advice - should have gotten independent advice
James McNaughton v Hicks (1991) - similar to Caparo - relied on draft accounts, but not prepped for them
Tests for third parties where no reliance
Wills - White v Jones (1995)
Surveys
Smith v Bush (1990) - third party - surveyor for bank - directly relied - first time buyers - court allowed - limited
Yianni v Edwin Evans (1982) - same
References - Spring v Guardian (1995) - proximity between reference writer and applicant - fair, just and reasonable
Negligent statements - disclaimers
Hedley Byrne v Heller (1964) - reasonable to rely on dislcaimer
S2(2) - Unfair Contracts Act 1977 - can exclude liability for economist loss if reasonable to do so - business relationship
Smith v Bush (1990) - couldn't rely on disclaimer - unreasonable for surveyor to have disclaimer as they is the whole reason someone would want a survey done
Consumer Rights Act 2015 - an unfair term is not binding
A term/notice is unfair if it causes a significant imbalance in the parties' rights and obligations to the detriment of the consumer - ss62(4) and (6) CRA 2015
Disclaimers at common law
Test of reasonableness