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 High CourtDeveloping approach of the High 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 Peat Marwick HungerfordsEsanda Finance Corporation Ltd v Peat 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.

Fraudulent Misrepresentation

Comparison with negligently inflicted pure economic loss

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

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

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

Krakowski v Eurolynx

Krakowskis – plaintiffs/appellants

Eurolynx– defendant/first respondent

Mallesons (Eurolynx’s solicitors)– second respondent

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