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Negligent Pure Economic Loss

Definition: where P suffered economic loss which is NOT consequent upon any physical injury to person/property. Distinct from intentional conduct causing economic loss this is NEGLIGENT. Courts reluctant to impose DOC in cases of pure economic loss because: o Indeterminate liability (Ultramares Corp v Touche, Niven & Co): Ds liability would be incalculable to an indeterminate amount for an indeterminate time to an indeterminate class. o Tort and contract: contract already effectively deals with economic loss, tort would interfere (Perre v Apand). o Liability where otherwise lawful commercial activity: commercial practices usually aim to damage competitors business. Tort should not interfere and make it unlawful (Sutherland Shire Council v Heyman; Hill v Van Erp). o No recovery rule (UK): Derry v Peek: no recovery for pure economic loss, unless statement was fraudulent. Hedley Byrne & Co v Heller & Partners: allowed for recovery in special circumstance of negligent statement, but NOT act. Weller v Foot & Mouth Disease Research Insitute: P (cattle auctioneers) lost money when sale yards closed by outbreak neg escaped from D. Held: no recovery. Candlewood Navigation Corp v Mitsui OSK Lines: D owner of ship neg collided with P charterer of vessel. Held: no recovery or property damage (not owner of ship). Elements: Knowledge of D Vulnerability of P Ascertainable class Request for information Reasonable reliance Negligent Misstatements: Can also sue in contract and under s52 (TPA) if D is corporation. Prev: no recovery for economic loss by negligent misstatement. Hedley Byrne v Heller & Partners: D bank gave credit reference for a company (one of their clients), to P (advertising agents) who extended that companys credit. Company liquidated and left P with unpaid debt. P sued D for neg misstatement. o HOL (obiter dicta): negligent misstatement may in limited circumstances have DOC o DOC arises where: D knows that P is likely to rely on information P reasonably relied on information Special Skill: MLC Assurance v Evatt: P (policy holder) with D (insurance). Got information and advice from D about investment in company H G Palmer. P kept shares and bought even more, on advice. Company liquidated and P lost investment. o Barwick CJ: P must prove reasonable for P to have relied on Ds information: Nature of subject matter Occasion of interchange Identity/relative position of parties to knowledge o HC: D having a special skill to proffer advice is NOT a prerequisite to DOC. o Appeal (PC): DOC should be confined to advisors with business/profession of giving that advice. o BUT in Australia prefers the view of Barwick CJ. Shaddock & Associates v Parramatta City Council: property developers bought property in Parra. Their solicitor make telephone/written enquiry to Council about whether property affected by any

road widening proposals. Council did not disclose on issued certificates that it was subject to widening. o HC: Council holds DOC no different from person carrying on business and giving info. o BUT disapproved of PCs Evatt approach. o THUS: not a prerequisite to DOC that D be in the business of giving info though relevant o Request for information helps Ps case. Reasonable Reliance: Tepko v Water Board: P companies owner of land. Wanted to rezone/subdivide. Borrowed funds from bank, but bank needed estimate of redevelopment (otherwise too expensive) eg water/sewerage connection. P got estimate from Water Board (after much pressure). Very high, so bank wanted repayment. P sold land for much smaller sum. Turned out estimate was greatly overstated. o HC: D had no DOC to P unreasonable. Figure was given reluctantly after much pressure/lobbying by P P had access to other expert advice Board unaware that figure required for Ps bank. Shaddock & Associates v Parramatta City Council: o HC: reasonable for P to rely on Council certificate BUT not reasonable to rely on advice given over phone to Ps solicitor by unidentified council employee. Ds knowledge/Ps request for information: San Sebastian v The Minister Administering the Environmental Planning and Assessment Act: P (property developer) relied on redevelopment plans published by Sydney City Council and state planning authority. P purchased property and lost money when D did not proceed with redevelopment. o HC: unreasonable of P to rely on published plan Plan did not have feasibility statement as to whether it was capable of implementation D made no statement as to whether plan would proceed. P made no request to D for information. BUT D will have DOC, where no request, if D intends to induce P (or class) to rely. Auditors: Esanda Finance Copr v Peat Marwick Hungerfods: P (finance company) loaned funds to Excel, relying on accounts audited by D. P did not get accounts from D. Excel failed to repay. HC: reluctant to impose DOC on auditors. McHugh J: o Increase in cost of auditing services from needing professional indemnity insurance. o Increase in auditor fees with decrease in competition and standard of services o Difficult admin of court extension of liability o Ps in this type of case would be sophisticated groups with means to avoid risk of loss o Audit info is widely disseminated to 3rd parties indeterminate liability o Creditors/investors can most efficiently absorb loss o Auditors neg only secondary cause of Ps loss first is failure of investment o Complex factual issues lengthy/costly trial. Negligent Acts: Caltex Oil (Australia) v The Dredge Willemstad: D dredge neg damaged oil pipeline owned by Aus Oil Refining, which conveyed oil to Caltex oil terminal. Caltex had expense of transporting by land economic loss. No proprietary interest in pipe no property damage. o HC: D owed DOC to Caltex to avoid pure economic loss. o Gibbs J: There are exceptional cases where D has knowledge that P individually (not member of class) will suffer as consequence of neg and thus owes DOC to not cause him damage by neg act. o Mason J: D liable if RF that specific individual (not general class) will suffer. o Difficult to discern a common ratio from judgments.

After: State Supreme Courts argued on Caltex principals, but P lost. Difficult to prove P known to D as individuals or members of ascertained class. Christopher v MV Fiji Gas: fishing boat rammed by other boat. No fishing and fishermen did not get wages. Applied Caltex. Held: fishermen not ascertainable class.

Later: didnt use Caltex, used assumption of responsibility and reliance instead. Bryan v Maloney: D builder of house purchased by P 7 yrs after construction. P found foundations inadequate and walls cracking diminished value of house. HC: DOC even though no contract. o Does not create indeterminate liability o Purchase of home is most important financial transaction o D in better position to avoid risk than P o Relationship of proximity as D assumes responsibility for property construction of house and P relies on D. Hawkins v Clayton: D solicitors make and keep will for client, died. P executor/residuary beneficiary not told of existence of will even though D could easily found P through directory. Principle asset, house, went into disrepair. P eventually informed but substantial death duty penalty and other economic losses. HC: DOC. o Deane J: relationship of proximity characterized by additional elements of known reliance or assumption of responsibility. Hill v Van Erp: P beneficiary and D solicitor. Will executed under Ds supervision and witnessed by Ps spouse. Hence gift of house to P failed. P sued D even though was 3rd party not Ds client. HC: usually no DOC to person other than client, BUT DOC imposed as D had assumed responsibility to client and to intended beneficiary. White v Jones: solicitor did not modify will to add beneficiary. HOL: P won. Proximity principles not favoured by HC anymore, but still relevant to DOC question. Perre v Apand: Ps potato farmers, sold potato crops into WA. D manufacturer of crisps, supplied potato seed to grower in vicinity of Ps farm. Some seeds diseased. WA regulations prohibit import of potatoes grown/processed within 20k of disease outbreak. P unable to sell crops in WA for at least 5 yrs. HC: DOC. Approved Caltex: no general rule of DOC not to cause RF pure economic loss BUT there are circumstances where recovery is permitted. No policy issues of indeterminate liability or illegalizing legitimate commercial activities. Ps members of ascertained class and D knew/couldve known who members of class were. Vulnerability of P - could not have done anything and did not even know supply of infected seed Reliance by P and assumption of responsibility by D are indicators of vulnerability. Johnson Tiles v Esso Australia: explosion at Esso gas plant. Cut off supply of gass to whole of Vic for almost 2 weeks. 3 main groups of Ps: business (close down), domestic gas customers (had to purchase new electrical appliances), workers (stood down as work closed down). Applied Caltex and Perre. No DOC found. Police - Indeterminancy: gas consumers large but not indeterminate identifiable class. BUT millions to billions of money recoverable indeterminable. Stood down workers indeterminate. Legitimate commercial activities not relevant. Control and assumption of responsibility - D had complete control of gas supply in Vic. Vulnerability of Ps customers aware of risk of interruptions in supply and could have insured against risk or taken back up precautions. Woolcock Street Investments v CDG: firm of consulting engineers advised original owners/builders of commercial building. DOC to subsequent purchasers who found foundations were structurally unsound? QLD COA: builders/designers of commercial buildings have no DOC to remote purchasers. Bryan v Maloney apply only to domestic dwellings.

HC: Bryan v Maloney DOC depends on assumption of responsibility, reliance, proximity and equating responsibilities of builder owed to 1st owner, with those owed to later owner. o D did not owe DOC to 1st owner as D advised original owners to do geotechnical investigations, but owners refused. Thus original owners did not rely. Distinguished from Bryan v Maloney. Majority: Ps not vulnerable. Ps commercial investors could have protected themselves by requiring warranties from vendor, or doing structural investigations themselves. McHugh J: relevant principles for DOC of pure economic loss: o RF of loss itself is not a test (policy reasons). o Indeterminancy of liability o Autonomy of individual (legitimate commercial interests) o Vulnerability of P o Knowledge of D to risk and its magnitude

Law for purely economic loss caused by negligent acts still in developing state. Defective Structures: o P may sue where they purchase defective structures o Two forms of liability: o Personal injury: Physical injury as result of defective design/execution of building work can sue in tort Donoghue v Stevenson. o Economic loss: loss is monetary (eg. fixing defect). o S5O also applied architect is a professional Builders: o Bryan v Maloney: HC held builder owed DOC to subsequent purchaser to take reasonable care in building of house (due to proximity). DOC owed may be for indeterminate periods. Limitation commencing only on occurrence/knowledge of damage. o THUS created a new duty category builders to subsequent purchasers. o BUT concerned with builder/purchaser of residential dwelling. o Doubt on DOC established by Bryan. o Woolcock Street Investments v CDG: court noted that proximity for DOC has now been rejected. BUT did not reject Bryan still good authority. Architects: o Voli v Inglewood Shire Council: Mr Voli injured when stage collapsed. Joists not able to carry the people, even though number was reasonable given entertainment purpose of it. Architect submitted plans to Public Works Department and no objection. Held: architect liable o Architect owes DOC to anyone whom it could reasonably be expected might be injured as result of his negligence. o Council also vicariously liable for architect and directly liable for neg failure to review plan. Engineers: o Woolcock Street Investments v CDG: subsequent purchaser of commercial building failed to sue buildings original project engineers for latent defects in building. o Commercial nature of arrangement distinguished from Bryan v Maloney. Councils: o Sutherland Shire Council v Heyman: Inadequate foundations by builder and Council had statutory powers to inspect footings of house. Purchasers had to spend money to repair. o Council owed no DOC to 2nd owners of house to take reasonable care to ensure house contructed in accordance with approved plans. o Gibbs CJ and Wilson J: Council had not acted neg in using discretionary inspection power o Mason, Brennan, Deane JJ: P did not rely on enquiry to Council about foundations/inspection o Dutton: council liable to P for failing to inspect faulty foundation.