Torts LWB133 Week 7Semester 2, 2000

Pure Economic Loss

continued...

Action in Negligence

Duty Breach Damage

Pure Economic Loss

Category of damage– not physical damage– not consequential economic loss

Exclusionary Rule

Traditionally no right to recover in negligence for pure economic loss

Recovery no longer excluded– Hedley Byrne v Heller– Caltex Oil v Dredge Willemsdad

No general rule

No general rule which recognises existence of a duty of care to avoid reasonably foreseeable economic loss

Exceptions

Possible to identify a number of exceptions to rule that generally no duty of care owed to avoid foreseeable economic loss– first scenario in which duty found to be owed

• economic loss resulting from negligent misstatement– Hedley Byrne v Heller

– Esanda

– exceptions not limited to cases of loss resulting from negligent misstatement

Reluctance to find duty owed

Policy considerations, for example;– fear of indeterminate liability

• eg Caltex

– inconsistency with community standards re what is ordinarily legitimate in the pursuit of personal advantage

• eg Bryan v Maloney

Establishing a duty

Reasonable foreseeability of economic loss will never be sufficient– compare with physical injury

• eg Deane J in Jeansch v Coffey

Something more will always be required

Pursuit of a General Principle? Judicial attempt to define the something more

unsuccessful, for example;– Anns v Merton London Borough Council

• two stage test

– Proximity• Jaensch v Coffey

• San Sebastian

• Bryan v Maloney

– Incremental/Case by Case Approach• Hill v Van Erp

Where are we now?

Perre v Apand– no uniform approach to establishing a duty of

care in a novel fact case– no general acceptance that pursuit of general

principle was desirable or possible• see eg per Gaudron J at 1194-5

– the law is still developing

Perre v Apand

P - potato growers– grown for export to WA market

D - proved seed to Sparnons on nearby property– seed infected with bacterial wilt

WA legislation prohibited import of potatoes from within 20 K radius of affected property– P could not sell their potatoes in WA

Classification of P’s Loss

P’s property not infected with the disease– no physical damage to person or property of P

Loss suffered was inability to sell potatoes in WA– pure economic loss

Issue for High court

Did the defendant owe a duty of care to the plaintiff to avoid the foreseeable risk of economic loss?

Outcome

All 7 justices allowed the Perre’s claim

Reasoning

Primary policy concerns– indeterminate liability

• High Court concluded this was not a problem here

– concern not to render ordinary business practice tortious

• this was not a issue in this case

– was there a more appropriate remedy?– Insurance not an issue

Four possible approaches to duty issue

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

Common Features

Is P vulnerable or dependent on D?– were the plaintiffs otherwise able to protect

themselves?

Was D in overall control of the situation? D’s knowledge

– of the Ps as an ascertained class– of P’s vulnerability

Is there physical/commercial closeness?

Previously decided cases

Economic loss resulting from negligent misstatement

Economic loss resulting from damage to the property of another

Failure of a professional person to perform an undertaking or service properly

Defective buildings

Spartan Steel & Alloys Ltd v Martin & Co

Plaintiff’s claim

damaged material– physical damage

loss of profit on that material – consequential economic loss

loss of profits on further melts– pure economic loss

Caltex Oil v The Dredge ‘Willemstad’

loss suffered by Caltex– oil lost from pipeline

• physical damage

– increased transportation costs• pure economic loss

Oil spill

Dredge

Alternative transport

Limitation on the persons or class of persons to whom duty of care owed for pure economic loss

unanimous decision that duty was owed to Caltex

different reasoning adopted by each member of the court

Reasoning Defendant has knowledge of plaintiff individually not

merely as member of unascertained class– Gibbs and Mason JJ

Sufficient proximity between tortious act and injury– Stephen J

physical effect on the person or property of the plaintiff– Jacobs J

No policy reasons to disallow recovery– Murphy J

Attempts to Apply Caltex

Christopher &Ors v The Motor Vessel “Fiji Gas”– the view of the majority in Caltex was that damages based

upon purely economic loss not connected with damage to the person or property of the plaintiff are not, in general, recoverable

Ball v Consolidated Rutile

25

Failure of a professional person to perform an undertaking or service properly

Does a solicitor who prepares a will owe a duty of care to an intended but disappointed beneficiary?

Hill v Van Erp

Brennan CJ– accepted that practical justice tends in favour of a

remedy

– did not accept that duty arose through extension of principles in Hedley Byrne

– necesary to define the elements additional to mere foreseeability which would allow recovery

• claim only by intended but disappointed beneficiary

• duty owed is in the performance of work in respect of which he owes a corresponding contractual duty to the testator

Dawson J adopted incremental approach something more than reasonable

foreseeability is required to establish a duty of care

• what is sufficient or necessary in one case is a guide to what is sufficient or necessary in another

proximity is result of a process of reasoning; not the process itself

relationship of proximity established by assumption of responsibility and reliance

Toohey J

agreed in general with the reasoning of Dawson J

Gaudron J there were no policy factors which operated to deny the

existence of a duty of care policy favoured the finding of a duty of care the contractual relationship between the testator and

the solicitor was relevant

• a duty to a third party would only arise where the alleged duty was consistent with the duty owed to the client

the element of control was relevant the nature of the loss suffered was the loss of:

• a precise legal right which, in turn, has resulted in economic loss

Gummow J

there were no policy reasons to disallow recovery

recognition of a duty did not interfere with any existing legal right

• the facts of the case fell within a gap in the law

duty arose as a result of a complex of factors (at page 530)

Defective Buildings

cases in which the plaintiff’s property is and always has been defective

traditionally no duty of care in tort

English cases

1978 - Anns v Merton London Borough Council

1983 - Junior Books v Veitchi 1989 - D&F Estates v Church

Commissioners for England 1990 - Murphy v Brentwood C.C.

Liability of Builder for Defective Foundations in Australia

particular category of case involving liability in tort for defective structures

Bryan v Maloney– diminution in value of the house categorised

as pure economic loss

Significance of Perre v Apand? No majority approval of incremental approach Case by case approach Reasonable foreseeability of economic loss not

sufficient Identification of relevant factors

– emerging emphasis on vulnerability, dependence and control?

Policy considerations remain important