Duty of care -financial loss and negligent statements Lecture 12 The Tort of Negligence 2 Duty of care -financial loss and negligent statements Breach of Duty

Duty of care :- financial loss The courts have not usually regarded it as just and reasonable to impose a duty of care when the damage is PURE ECONOMIC LOSS , only exceptionally allowing it where there is a high degree of proximity. They are more likely to impose a duty for CONSEQUENTAL ECONOMIC LOSS

MIURHEAD v INDUSTRIAL TANK SPECIALTIES Ltd [1986] QB 507 The claimant ran a lobster farm and was supplied with oxygen pumps manufactured by the defendant through a contract with a third party. The pumps were not compatible with the UK electricity system and kept cutting out

The claimants lobsters died and he was unable to restock for a substantial period of time while he attempted to work out what was wrong. HELD the claimant was entitled to recover the consequential cost of restocking the lobsters and for the loss of profit on those that died.

He was not entitled to recover profits lost during the time the lobster production was suspended or the cost of replacing the pumps as these were pure economic loss only

rationale Pure economic loss is usually derived from goods being defective and can often be dealt with under contract Consequential economic loss is the knock on costs of the damage caused by the defendants negligence

So …… This case shows that a business mistake can result in legal liability under contract and /or tort and as employers are vicariously liable for the acts of their employees during the course of their employment , the need to meet professional business standards of behaviour is imperative

negligent statements There is considered to be no difference between liability arising from negligent statements and from negligent acts If a job involves giving professional advice there may be liability for what is done AND what is said as a duty of care is owed to clients

e.g. Lawyers Accountants Auditors Valuers and surveyors etc

HEDLEY BYRNE v HELLER[1963]AC 465 An advertising agency was given a reference from a clients bank which incorrectly stated that the client was creditworthy and in reliance on this mounted a campaign for the defendant who then went into liquidation without paying

HELD there is a duty not to make careless statements which cause economic loss provided a special relationship of close proximity “akin to contract” exists between the parties ( though in this case a disclaimer prevented such a relationship existing)

It must be :- Reasonable for the claimant to rely on the statement Reasonably foreseeable to the defendant that reliance would be placed

criteria for reliance - considerations Defendants ability to give reliable advice i.e. qualifications/expertise The circumstances in which the advice was given i.e. business / social Use of a disclaimer may make reliance unreasonable and unforeseeable

remember Professionally you are liable for what you do AND what you say Don’t hold yourself out as possessing knowledge that you don’t have If you don’t know, say so !

2) BREACH OF DUTY After establishing a duty of care , the claimant must show that this duty has been broken (breached) by the defendant

test for breach of duty Whether the defendant has failed to do what a ‘reasonable person’ would have done or has done what a reasonable person would not have done. Whether the defendants conduct amounts to a breach of duty depends on the circumstances of the case

considerations a) The likelihood that damage or injury will be incurred b) The seriousness of any damage or injury c) The cost and ease of taking precautions d) The social need for the activity

a) likelihood of damage/injury The greater the likelihood of an accident the more care the defendant may need to take BOULTON V STONE [1951] AC 850 the claimant was injured by a cricket ball hit from the defendant clubs grounds .The fence was 17 feet high and the ball travelled over 80 yards .

HELD the hit was a rare occurrence HELD the hit was a rare occurrence . The defendant was not liable as reasonable care had been taken to reduce the risk

b) The seriousness of any damage/injury The greater the extent of the likely damage the more the defendant is expected to do to reduce its risk. PARIS v STEPNEY COUNCIL [1951] AC 367 :- the claimant was employed by the defendant. He only had one eye and was blinded in his other eye in an accident at work

HELD the defendant failed to act with reasonable care by failing to supply goggles as the consequence of injury to the claimants eyes was much more serious than to other employees

c) cost/ease of precautions The courts seek to impose a standard of care that gives reasonable protection to the claimant while not unduly burdening the defendant This is described as a risk benefit analysis A risk free environment can never be guaranteed

WITHERS V PERRY CHAIN Ltd [1961] 1 WLR 1314 The claimant was employed in a factory where contact with grease was necessary. She became allergic to the grease and developed a skin condition and was moved to the most grease free position possible but the allergy persisted

HELD the defendant had done all that was reasonably expected to prevent harm to the claimant and therefore was not in breach of duty and the claimant’s case failed

d) social need The court may assess the social utility of the defendants conduct in determining whether he was negligent DABORN V BATH TRAMWAYS [1946] 2 All ER 333:- the issue was whether the driver in war time of a left hand drive ambulance had been negligent in turning left without a signal

HELD the duty of care had not been broken as the purpose to be served in using the ambulances justified the assumption of abnormal risk

burden of proof The burden of proving that the defendant did not act reasonably lies with the claimant But if the situation is such that the only or most likely explanation of the accident is that the defendant was negligent the claimant may claim “res ipsa loquitur”

res ipsa loquitur This means “the facts speak for themselves” This has the effect of placing the burden of proof on the defendant who must show either how the accident occurred or that he has not been negligent

conditions of res ipsa loquitur The event which caused the accident must have been in the defendants control and The accident must be of such a nature that it would not have occurred if proper care had been taken by the defendant

CASSIDY V MINISTER OF HEALTH [1951] 1 All ER 574 The claimant went into hospital for treatment of 2 stiff fingers but left with 4 stiff fingers HELD res ipsa loquitur applied

3) CONSEQUENTIAL DAMAGE This will be covered in the next lecture

References:- Adams, A. (2014) ‘Law For Business Students’. 8th Edn. In SAM Core Reading Volume Two. 2nd Edn. ed. By Jeffree, D. Harlow: Palgrave, 205-266