1. LAWS11064 Torts B Module 6 – Special Negligence Cases: Pure Economic Loss

2. Objectives At the end of this module you should be able to: Define and give example of pure economic loss; Understand the salient features and policy factors used to determine duty of care in cases involving economic loss, including negligent misstatement; Explain why the law is concerned to limit potential liability in such cases, and evaluate the validity of policy justifications for doing so; and Apply the legal principles relating to economic loss to specific fact scenarios.

3. Negligence so far… 1. Duty of Care Established Categories – provide authority Novel Cases: Reas. Foreseeability; Salient Features; Relevant Policy Considerations? 2. Breach of Duty – s 9 CLA Standard of Care (Reas Person; Professionals; relevant characteristics) Breach – RF risk, not insignificant, what would a RP in Def’s position do? 3. Damage – s 11 CLA Factual Causation – “necessary condition” (s. 11(1)(a)) Scope of Liability – “RF of kind of harm; normative considerations” (s.11(1)(b)) In cases of pure psychiatric injury: (Special Category) Reasonable foreseeability of P.Injury to Pl Control Factors help determine RF: Sudden shock; Direct Perception; Rship between Pl and Victim; Rship between Pl and Def

4. This week: Pure economic loss (PEL) Liability for PEL caused by negligent misstatement / misrepresentation Part 1 Liability for PEL caused by negligent acts Relational economic loss Defective buildings Part 2

5. What is PEL? Consequential economic loss: economic loss that is a consequence of physical harm or property damage suffered. Pure economic loss: adversely affects Pl’s financial status, eg. through wasted expense or failure to make gain. Characterised by absence of physical injury/damage to property. A B Suffers physical injury C Loss of employee D Loss of product for contract with E E Loss of product tort Can’t work B suffers consequential economic loss C can’t deliver welding. PEL C loses contract with D. PEL

6. Reasons for limiting recovery for PEL Impossibility of foreseeing PEL Even if foreseeable, difficult to ascertain extent/impact (“indeterminate amount for an indeterminate time to an indeterminate class” Ultramares Corp v Touche Niven (1931)) Resources are limited - the value of economic interests rank lower than personal health and safety Jurisprudential tension between freedom of action (eg legitimate pursuit of financial gain) and recovery of damages. See for eg. Bryan v Maloney (1995) 182 CLR 609 at 618 “in a competitive world where one person’s economic gain is commonly another’s loss, a duty to take reasonable care to avoid causing mere economic loss to another, as distinct from physical injury to another’s person or property, may be inconsistent with community standards in relation to what is ordinarily legitimate in the pursuit of personal advantage”.

7. Development of Law Historically: recovery for PEL is not permitted – See for eg: Spartan Steel & Alloys Ltd v Martin & Co [1973] 1 QB 27 (Pl operated steel factory. Def’s employees negligently cut off electricity supply. Damages awarded for ‘melt’ in machine and for damage to machinery, but not for 4 further melts. Based on indeterminacy of liability argument. Law now recognises DoC may exist in regard to: – Negligent misstatements (misrepresentations) causing PEL – PEL causally related to physical damage to the property of a third party – PEL causally related to negligent provision of services to a third party – Defects in a building causing PEL to a subsequent owner of that building. Relevant factors in Duty question: – RF of kind of loss – Control of Def over circumstances – Vulnerability of Pl – Autonomy/commercial freedom – Coherence, Indeterminacy

8. Part 1:Negligent misstatements causing PEL Traditionally no recovery: Le Lievre v Gould [1893] 1 QB 491. Hedley Byrne & Co v Heller & Partners [1964] AC 465 per Lord Pearce: “Negligence in word creates problems different from those of negligence in act. Words are more volatile than deeds. They travel fast and far afield. They are used without being expended and take effect in combination with innumerable facts and other words. Yet they are dangerous and can cause vast financial damage” (at 534) Still developing area, but also less common action as result of the Australian Consumer Law (formerly Trade Practices Act). First UK case was Hedley Byrne; followed by Aus case of Mutual Life & Citizens Assurance Co Ltd v Evatt (1968) 122 CLR 556 ‘Special relationship’ gives rise to duty of care.

9. Relevant factors of “special relationship” Was responsibility for the statement assumed by the Def? Was there actual and reasonable reliance by the Pl on the Def’s statement? Is there a disclaimer/waiver/exclusion clause?

10. Assumption of responsibility Objective test, considered in light of all the circumstances: Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. Tepko P/L v Water Board (2001) 206 CLR 1. Possible indications include: – Def responded to a request for info or advice – Def possessed a special skill to which info or advice was related – If speaker had financial interest in the advice: Day v Ost [1973] 2 NZLR 385; O’Leary v Lamb & Lensworth (1974) 7 SASR 159. – Cf Real Estate Agent cases: Barrett v J R West [1970] NZLR 789; Presser v Caldwell Estates P/L [1971] 2 NSWLR 471; Norris v Sibberas [1990} VR 161. Did Def know, or ought to know, that they were being trusted by the Pl to give the info and advice and that the Pl would rely? (as per MLC v Evatt) Key High Court case in this area

11. Actual and reasonable reliance “reliance is the cornerstone of liability for neg. misstatement”: San Sebastian Pty Ltd v Minister Administering the EPA (1986) 162 CLR 340. “Reasonable” depends on circumstances: MLC v Evatt. Consider: – nature of the advice/info. Eg. Mohr v Cleaver [1986] WAR 67: the Def accountant was held not to owe a DoC for investment advice requested by the Pl over the telephone as ‘off-the-cuff’ or ‘kerbside opinion’. Chaudhry v Prahbakar [1988] 3 All ER 718: Def helped his friend buy a car but gave her poor advice; held liable. Def told Pl not to get car inspected by a mechanic. – Circumstances of how the advice/info given. Eg. Curran v Greater Taree City Council (1992) Aust Tort Reps 81-152: Pl’s reliance not reasonable in circumstances because she knew of the stormwater culvert before purchasing cottage. See also Tepko where the Water Board had reluctantly given the estimate. – Identity, position and skill of representor: L Shaddock v Parramatta City Council (1981) 150 CLR 225; Norris v Sibberas [1990] VR 161. Was there actual and reasonable reliance by the Pl on the Def’s statement?

12. Actual and reasonable reliance cont. For reliance by third parties on misstatements: see Esanda Finance Corp v Peat Marwick Hungerfords (1997) 188 CLR 241 – Finance company lent money based on accounts audited by the Def. – High Ct held reliance on the audit report insufficient on its own. See also, Interchase Corp v Grosvenor Hill P/L (No 3) [2003] 1 Qd R 26 (Pl one of only 2 parties given valuation) BT Australia v Raine & Horne [1983] 3 NSWLR 221 (Def knew of reliance)

13. Disclaimer Disclaimer is a factor taken into consideration and might prevent a rship arising if “sufficiently potent” (per Barwick CJ in MLC v Evatt at 570). In Mid Density Developments v Rockdale Municipal Council (1993) 116 ALR 460, council provided certificates: ‘The above information has been taken from the council’s records but council cannot accept any responsibility for any omission or inaccuracy’. Def liable; disclaimer went to ‘procedures’ rather than information itself. May amount to an implied acceptance of responsibility for some consequences: BT Aus v Raine & Horne Fick v Groves [2010] QSC 89 at [204] – contractual acknowledgment of ‘no reliance’ needs to be weighed with the evidence of actual reliance’. Assumption of responsibility may be negatived or excluded by appropriate disclaimer: Hedley Byrne.

14. Scope of duty, Breach and Damage The duty not to mislead a recipient in the giving of advice or the expression of opinion is not absolute but limited by ‘reasonable reliance’. – The duty arising from advice may be continuous: eg. RT & YE Falls Investments v NSW [2007] NSWCA 18 (Pl’s incorrectly advised that diseased cattle could stay with healthy herd). Standard of care is that of the reasonable person. If Def is a professional, please note that the CLA provisions relating to professional practice do not apply to the giving of advice associated with that professional service: s. 22(5) CLA Qld. However, legislation such as Professional Standards Act 2004 (Qld) may apply to limit liability of members of certain occupational groups in regard to economic loss (not personal injury, death, fraud or dishonesty). Causation: CLA s.11 applies. The PEL that is suffered must be a reasonably foreseeable consequence of the Pl’s reliance on the misstatement: South Australia v Johnson (1982) 42 ALR 161; Jazabas v City of Botany Bay Council (2000) ANZ Conv Reports 616.

15. Part 2: Negligent acts causing PEL – Relational Loss Caltex Oil v The Dredge ‘Willemstad’ (1976) 136 CLR 529 – Applied in Fortuna Seafoods P/L v The Ship ‘Eternal Wind’ [2005] QCA 405: vertically integrated commercial operations such as those between the Pl and the owner of the ship were common in the fishing industry – hence knowledge of the Pl was within the means of the Def. The nature of the commercial operation also narrowed down the size of the class of potential Pl’s. Perre v Apand Pty Ltd (1999) 198 CLR 180 – factors approach Barclay v Penberthy [2012] HCA 40 – employer recovered for PEL caused by injuries to employees. Tortfeasor Physical Damage to P1 PEL to P2 Tortious Act Possible DOC for PEL Eg. Caltex Oil v Willemstad; and Barclay v Penberthy

16. PEL: Relational Loss cont. Ascertainable class? –See Fortuna Seafoods (vertically integrated commercial operation); Johnson Tiles v Esso (2003) Aus Torts Reports 81-692 (no liability for interruption of gas supply). Barclay v Penberthy (charter flight, pilot knew of purpose) –“First line victims” (Perre v Apand; Johnson Tiles) Control & Vulnerability? –Availability of insurance? Not relevant (per McHugh J in Perre and majority in Barclay) but cf Johnson Tiles. Interference with ordinary commercial behaviour? –Would a DOC “impair the def’s legitimate pursuit of autonomous commercial interests”?

17. Negligent provision of services Hill v Van Erp (1997) 188 CLR 159: Pl was intended (but disappointed) beneficiary; held owed a duty of care by the Def solicitor to ensure that the will complied with formalities to ensure intended benefit. – Per Brennan CJ: ‘In one sense, Mrs Van Erp has suffered no loss. She simply failed to obtain a benefit to which she had no legal entitlement’. Still found DoC based on assumption of responsibility. Dawson J held this type of case gave rise to determinate liability as potential Pl’s specifically identifiable. Gaudron J: ‘Def in position to control the enjoyment of Pl’s legal right’. On coherency of duties: see eg. David v David [2009] NSWCA 8. – Solicitor did not owe a duty to parties who might enter into contracts with his clients under contracts prepared by him. – “save for circumstances of assumption of duty (and leaving to one side knowledge of fraud), it would be an extraordinary development of the law to impose upon the solicitor a duty to take some step or give some advice to a third party that was inconsistent with the interests of his primary client” (at [92]).

18. Defective buildings and PEL Voli v Inglewood Shire Council (1963) 110 CLR 74: High Ct held builders owe a DoC to any person who might reasonably be expected to suffer personal or property damage (other than that in respect of the defective structure itself). Subsequent purchasers of defective buildings considered in: – Bryan v Maloney (1995) 182 CLR 609 – Woolcock Street Investments P/L v CDG P/L (2004) 216 CLR 515 (leading HCt case) – Project Company No 2 Pty Ltd v Cushway Blackford & Associates [2011] QCA 102 (commercial premises)

19. Defective buildings: Bryan v Maloney Bryan v Maloney: Duty imposed. 4 considerations justified finding of proximity: House is ‘connecting link’ PEL foreseeable result of negligent construction ‘no intervening negligence or other causative event’ (per Mason CJ, Deane and Gaudron JJ) “by virtue of superior knowledge, skill and experience in the construction of houses, it is likely that a builder will be better qualified and positioned to avoid, evaluate and guard against the financial risk posed by latent defect in the structure of a house” (at 627).

20. Defective buildings: Woolcock St Investments Woolcock Street Investments v CDG: no duty owed by builder to subsequent purchaser due to commercial nature of Pl. The majority held: “the appellant was not, in any relevant sense, vulnerable to the economic consequences of any negligence of the respondents in their design of the foundations for the building … It may be accepted that the appellant bought the building not knowing that the foundations were inadequate. It is not alleged or agreed, however, that the defects of which complaint now is made could not have been discovered”. Further, the relationship between the engineer and the original owner was not one where the owner entrusted the design of the building to the engineer under a simple non-detailed contract. No DoC would have been owed to the original owner, hence no liability could be found here.

21. Woolcock St Investments cont. Cf Kirby J’s dissent in Woolcock: he felt that vulnerability could extend to Pl’s who: … might be carrying on a profitable economic enterprise but who are exposed to an insidious risk by the acts of others about which they were unaware and against which they could not reasonably protect themselves. “In a commercial context there may be many more to be considered – assumption of risk, known reliance and commercial pressures, to name but a few.”

22. Review All of my PEL flowcharts are available on Moodle.

23. Review In this module you have learned to: Define and give example of pure economic loss; Understand the salient features and policy factors used to determine duty of care in cases involving economic loss, including negligent misstatement; Explain why the law is concerned to limit potential liability in such cases, and evaluate the validity of policy justifications for doing so; and Apply the legal principles relating to economic loss to specific fact scenarios.

24. Acknowledgements – References Danuta Mendelson, The New Law of Torts (2 nd ed 2010), published by Oxford University Press. Rosalie Balkin and Jim Davis, Law of Torts (4 th ed, 2009) published by LexisNexis Butterworths. Julia Davis, Connecting with Tort Law (2012) published by Oxford University Press. Bernadette Richards, Karinne Ludlow and Andy Gibson, Tort Law in Principle (5th ed, 2009) published by Thomson Reuters Lawbook Co. Frances McGlone and Amanda Stickley, Australian Torts Law (2nd ed 2009) published by LexisNexis Butterworths. Amanda Stickley, Australian Torts Law (3 rd ed 2013) published by LexisNexis Butterworths Martin Davies and Ian Malkin, Torts (Focus Series, 6 th ed, 2012) published by LexisNexis Butterworths. Carolyn Sappideen, Prue Vines, Helen Grant and Penelope Watson, Torts Commentary and Materials (10 th ed, 2009) published by Thomson Reuters Lawbook Co. Sarah Withnall Howe, Greg Walsh and Patrick Rooney, Torts (LexisNexis Study Guide, 2 nd ed, 2012) published by LexisNexis Butterworths.