Torts LWB133 Week 6 Semester 2,2000 Part VI - Economic Loss

2 PART VII - ECONOMIC LOSS 4 SECTION 1 –Negligent and Fraudulent Misrepresentation 4 SECTION 2 –Pure Economic Loss Other than by Misrepresentation

3 Novel Categories of Negligence 4 cases not clearly covered by precedent –examples nervous shock pure economic loss public authorities non-feasance

4 Negligence Action 4 Three elements –duty –breach –damage

5 Duty of Care 4 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

6 What is pure economic loss? 4 it is not physical damage 4 it is not economic loss which is consequential on physical damage

7 POLICY CONSIDERATIONS 4 the fear of indeterminate liability 4 disproportion between defendant’s blameworthiness and liability 4 interrelationship between liability in tort and contract 4 the need for certainty 4 the effect of insurance

8 Developing approach of the High Court 4 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

9 Novel fact situation 4 was the loss reasonably foreseeable? 4 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

10 Perre v Apand (1999) 73 ALJR 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

11 Categories of cases 4 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

12 Continuing relevance of these categories 4 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

13 Negligent Misrepresentation 4 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

14 Hedley Byrne v Heller (1964) 4 no need to establish a contractual or fiduciary relationship 4 person giving the information must be possessed of special skill (or hold themselves out as having such skill) 4 assumption of responsibility by the speaker 4 reasonable reliance by plaintiff 4 no disclaimer of responsibility

15 Position in Australia 4 MLC v Evatt (High Court) 4 accepted that duty of care could arise irrespective of contract or fiduciary relationship 4 Barwick CJ identified features of special relationship which would give rise to duty of care

16 FEATURES OF RELATIONSHIP 4 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 4 speaker knew or ought to have known that recipient intended to rely on the information 4 reasonable for recipient to seek or accept and rely on speaker advice 4 no need for recipient to actively seek the information or advice 4 no requirement that speaker have special skill

17 Appeal to Privy Council 4 speaker must carry on business of giving advice or let it be known the claims to possess special skill in the field

18 Subsequent High Court Decisions 4 Shaddock v Parramatta City Council (1981) –no requirement that speaker be possessed of special skill (not necessary to decide in this case) 4 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

19 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords High Court decision 4 confirms approach adopted in MLC v Evatt and San Sebastian

20 Impact of decision in Perre v Apand 4 ? 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 4 Comparison with negligently inflicted pure economic loss

Five Elements 4 a representation of fact 4 defendant knew representation was false or recklessly indifferent 4 defendant intended plaintiff to rely on the misrepresentation 4 plaintiff did rely on the representation 4 plaintiff suffered damage

CBC v Brown 4 misrepresentation of fact –defendant gave written advice that customer financially stable 4 defendant knew representation was false –question of fact 4 defendant intended plaintiff to rely on representation –not relevant that statement made to intermediary acting on behalf of a class of persons

4 effect of disclaimer –cannot exclude liability for deceit 4 did plaintiff rely on representation? –yes! they would have breached the contract 4 did the plaintiff suffer damage in fact and law? –loss was direct and foreseeable consequence of the fraudulent misrepresentation

Krakowski v Eurolynx 4 Krakowskis –plaintiffs/appellants 4 Eurolynx –defendant/first respondent 4 Mallesons (Eurolynx’s solicitors) –second respondent

The representation 4 an allegation that the disclosed instrument of lease was not the exhaustive contractual arrangement between E and the lessee 4 falsity of the representation 4 inducement 4 fraud by Eurolynx

27 Next Week 4 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 4 Significance of decision in Perre v Apand