Deceit (Fraud) & Injurious Falsehood

Rules of remoteness and damages are much favorable to the plaintiff than the defendant
D will be liable for all of the losses that it either intended or natural and probable result of entering into a
transaction on the basis of fraudulent misrepresentation
Issue: whether those losses were foreseeable or not
P can also recover exemplary damages where D acted with high handed disregard for the Ps rights

Both Deceit and Injurious Falsehood are concerned with liability of the maker of a deliberately false
representation in respect of loss caused by that representation
Representation made to P directly and acted on by P Ds liability in tort of deceit
Representation made to 3rd person about Ps goods or business and that 3rd person acts to cause
loss to P Ds liability in tort of injurious falsehood
Financial loss caused by negligent statement rather than a dishonest statement may be actionable in
negligence. -**
A claim in negligence may succeed even though an intention to deceive or malicious purpose cannot be
proved.
Inducing Breach of Contract
Requirements
-The contract between 3rd party and P must be valid, enforceable/actionable/ still on foot
-There must be positive conduct involving inducement or procurement
-Fault element: D must intend to bring about a breach of K
P doesnt have to prove malice or ill will
Intention implies knowledge Ds knowledge that his request to 3rd party will breach K b/w 3rd
party and P
Hospitality Group v Australian Rugby Union Ltd Account for profits
Sufficient knowledge of K required to deprive the benefit of P from K
Precise terms of K not required

Appellant was told by ATFS that there had to be a travel component and that the
appellant knew that between its K b/w itself and ATFS, it did not include a travel
package.

Appellant was sufficiently aware of K b/w ATFS and ARU

If D honestly believes that he will not bring about breach of K, intention is not satisfied.
 Blind eye approach in not asking terms of K common knowledge of the way business is
conducted sufficient
-Damage
Hospitality Group v Australian Rugby Union Ltd Account for profits
ARU did not suffer any loss
Purpose of tort remedies: to put the P back in the position had the tort not occurred
J Emmet (dissent) Australian law should recognize account for profits as an
appropriate remedy for torts
Majority, under presently accepted principles in tort remedies, injured plaintiffs
cannot claim windfall to prevent a wrongdoer profiting from his wrong
except when these illicit profits are taken into account in relation to exemplary
damages award.
There is potential for exemplary damages award when D acted in high handed
disregard of Ps rights effect of exemplary damages can strip off Ds
gain.
Full federal court: something bordering on malicious required to award exemplary damages
in case of economic torts in which intention is an element and damages are at large, D must be guilty of
something bordering on malicious before remedy will be granted. If that is not the case, exemplary
damages will be granted whenever D commits an intentional tort. <<this is not the law(?)
ARU went empty-handed from this case
-Defence: Justification (only defence rarely successful)
Zhu v NSW Treasurer
Actually existing superior propriety right Im doing no more to reasonably protect that right
justification defence
Equal rights no superior rights no defence of justification
Network Ten v Seven Network (Operations) Ltd
Employment with 7, notice to resign, offer from 10, 7 offers 4x salary, withdrew from 10s offer,
Mr S didnt breach 10s contract (b/c employment did not actually occur), employment clause
with 10 not to be simultaneously work for other entertainment entity not activated b/c
employment had not commenced so no breach court noted that if there had been a breach of the
agreement, it would have concluded that 7 had intentionally and knowingly induced that breach

court cited mid 90s Federal decision All State Life Insurance that although the tortfeasor must
have a fairly good idea that K benefits another, knowledge of K may be sufficient for the purpose
of grounding the necessary intentions to interfere with contractual rights although precise terms
breached may not be known
 Court also emphasized that Casual link b/w what the 3rd party does and the breach occurrence is
required for 10 to make out its case against 7, 10 had to demonstrate pressure or persuasion that
was aimed at K to cause that pathway 7 assisted the man to draft an email to 10 notifying
withdrawal no doubt of act of 7s active conduct that was causative court noted that the man
had repudiated his obligations under 10s agreement, 10 could have accepted that repudiation and
terminated K to seek for damages and other relief 10 didnt do that but affirmed the K court
held that absence of an acceptance of that repudiation, 10s K remained on foot.
Revision on Negligence
-DoC
-usually straightforward
-cases usually fall in an established category (look at the decided cases)
Dont fall into novel case approach, take incremental approach, refer to past cases
-Breach
-common law (Romeo)
what a reasonable person in Ds position would have done in response to a reasonable foreseeable
risk of injury to a person in Ps position
considerations: whether the risk was obvious, the degree of magnitude of the risk,
seriousness etc
-s 5B CLA
-Damage caused by negligence which is not too remote from the negligence or within the scope of the
defendants liability
1. factual causation under s5D (statutory scheme for but for test) threshold test
No real issues here: just from factual statement
2. whether or not there is normative basis to deny liability under s 5D
Issues: remoteness/ chain of causation (novus actus questions)
 Purely Economic Loss (quite tricky to distinguish)
-purely economic loss is not a consequence of injury/damage caused by D to Ps personal property
-distinguished from consequential economic loss financial loss suffered as a secondary harm
i.e. consequential loss = loss of earning following a car crash, medical expenses etc
-example of purely economic loss (not consequential)
i.e. cutting a power line accidently cut off factorys power factory loses profit for 2 weeks
-law use a notion of DoC as a control device to distinguish b/w these two losses
-starting point/general position: a person does not owe a DoC in tort to take care to not to cause
reasonably foreseeable economic loss
Rationale for the general position policy considerations:
-fear of interfering with free enterprise (often, one persons gain is anothers loss)
-concern over tort law impinging on contractual relationship b/w parties & 3 rd party
-spectre of indeterminate liability (unpredictability of economic loss)
Cardozo CJ in Ultramares Corp v Touche (1931) NY:
If liability for negligence exists, a thoughtless slip or blunder, the failure to
detect a theft or forgery beneath the cover of deceptive entries, may
expose accountants to a liability in an indeterminate amount for an indeterminate
time to an indeterminate class.
Until 1964, no common law duty of care for purely economic loss
Two landmark cases
For purely economic loss from negligent misstatements: Hedley Byrne v Heller, 1964
(followed by Evatt, HCA)
-The shadow of Derry v Peak
Until this case, Derry v Peak had been the leading authority and it was assumed that this case stood for
the proposition that negligent misstatement was insufficient to support an action in tort but this
general understanding of what Derry v Peak said was mainly based on comments made in the court of
appeal in that decision directors believed the statement to be true without reasonable grounds for that
belief and the court of appeal said that was fraud (that finding was overturned on appeal) Hedley Byrne,
House of lords reviewed Derry v Peak and observed that the courts decision in Derry v Peak was
confined to a finding that there can be no fraud without dishonesty, so whether or not there was a duty of
care in that case wasnt actually considered, p225 of casebook (cases on torts), decision on Derry v Peak
was reviewed by the House of Lords in Hedley Byrne and they considered that Derry v Peak did not
decide anything regarding causes of action for negligent misstatements they thought that the decision
had been limited to action to deceit and since Hedley Bryne, HCA recognized that duty in tort can arise
that will enable P to recover purely economic loss.

Broad categories:
1. Liability for negligent misstatements
2. Professional negligence claims for purely economic loss
Hawkins
Hill v Van Erp
Claims by an executor or a beneficiary of a will against the solicitors who drafted that will

3. Difficult claims by 3rd parties who were not part of the original building K for purely economic
loss for latent damage to buildings

Bryan v Maloney
Woolcock

4. D negligently inflicts physical damage on 3rd party property / personal injury to a 3rd party as
a result of which P suffers pure economic loss aka. Relational loss
Property - Caltex Oil v The Dredge Willemstad
Personal injury Barclay v Penberthy
1. Negligent misstatements
-pure economic loss may occur when there is no immediate relationship b/w giver of the advice and the
person who acts on it
Hedley Byrne v Heller, was the first case which actually extended liability caused by misstatement to
include misstatements made in breach of duty of care. Extended liability in a sense that misstatement was
only thought to be actionable to fraud as seen in Derry v Peak.
Hedley Byrne v Heller

Facts P, advertising agents, agreed to place advertisements for their client (C), at
their own expense and receive reimbursement at a later date (would be
reimbursed); Before entering the agreement, P asked its bank to contact D, Cs
bank, for an assurance re: Cs creditworthiness; D provided an assurance re: Cs
creditworthiness, but stipulated that they were not undertaking responsibility for
the truth of their statement (without any responsibility on our part); C was, in
fact, not creditworthy and could not afford to repay its debt to P; P sued D for the
economic loss it suffered as a result of the advice D negligently provided

Now, under K law, it would be pointless for P to sue C (no money) and impossible
to sue D (no K). P could only pursue D under Tort law.
Held You can recover damages for negligently caused PEL in tort (cause of
action recognised), but not made out in this case (due to disclaimer, which would
make it unreasonable to rely upon the statement)

Discussion of Duty

Lord Hodson its difficultnature of the damage

Lord Devlin

1. There is neither logic nor common sense in distinguishing between financial

and physical losses

2. A Duty of Care ought to arise in the absence of a K where the situation is

nonetheless equivalent to K with regard to the assumption of responsibility
(payment of consideration (in sense of value of bargain) is not definitive, but may
well have received some other kind of benefit voluntarily provided)

Lord Reid

1. Established important distinction between negligent acts and words

(advice/information); law must treat negligent words differently from negligent
actsobvious difference- quite careful people often express definite opinions on
social or informal occasions even when they see that others will be influenced by
them, but whereas a negligently made article [act] will only cause one accident
words can be broadcast with or without the foresight of the speaker or writer
(This judgement has resulted in different tests being applied in Australia(see
below)

2. RE NEGLIGENT WORDS: Neighbourhood principle in Donoghue v

Stevenson is insufficient to deal with these cases; attempted to articulate
additional criteria; Just making a misstatement will not result in liability- in addition
to making a misstatement:

(i) the speaker must have undertaken some responsibility for what he said
(ii) the listener/audience must trust speaker to exercise a degree of care in those
particular circumstances and where it would be reasonable to do so
(iii) the speaker ought to have known that the listener was relying on him
 If these 3 factors were satisfied, Lord Reid held that there was no reason for
there to be no liability

Lord Morris: Duty of care ought to arise where someone possesses a special
skill and undertakes to give some advice in application of that skill, where others
could reasonably rely on their words

Lord Pearce: RE: CIRCUMSTANCES IN WHICH STATEMENT IS MADE; For a

DoC to arise, the representation must normally concern a business transaction
whose nature makes clear the gravity of the enquiry and the importance and
influence attached

-duty question something more than reasonable foreseeability is required in PEL cases
-focus - 2 key formulations: Lord Reid [486] & Lord Morris [502]-[503]

-Notion of a person accepting or assuming responsibility for his or her words

-Nature of the relationship between the person giving advice and the person who acts on that advice
Lord Reid:
Donoghue v Stevenson reflected the standards of a reasonable man, but there is a difference between
negligent acts and negligent words, conduct is conduct but the context which the words can be given vary
considerably (i.e. parties, business occasions) obvious difference: people accept opinions more carefully
if they can see that people will be influenced by them so theyre going to take more care if theyre asked
for the opinion in a professional context rather than at a cocktail party so different standards of conduct
will need to apply depending on the context - 2nd difference: conduct or a negligently made bottle of
ginger beer for example tends to have a more limited range of people that it will affect where words can
be broadcasted and relied on by whole range of people. So Lord Reid drew a fairly critical distinction
between the formulation of Lord Akin in Donoghue v Stevenson and words. There has to be something
more to give rise to a duty. So if youre dealing with a manufactured product, manufacturer of a good can
spread the cost of liability over its products but this is more difficult to achieve when youre dealing with
negligent misstatements, its quite hard to set your professional fees and the courts are concerned that the
burden of potential liability here could be wholly disproportionate to a professionals fee so Lord Reid
then went on to hold that a special relationship will arise where its clear that the person seeking the
information (recipient) was trusting the speaker to exercise a degree of care and it was reasonable for the
recipient to do that and when the speaker gave the information or advice, he knew or ought to have
known that the recipient was relying on him.
Where the speaker and the recipient know each other

Lord Morris:
If someone possessed of a special skill, undertakes irrespective of K, to apply that skill for the assistance
of another person who relies on such skill, a duty of care will arise. This was to apply where a person
takes upon themselves to give information or advice and allows the information to pass on.
Not confined to words / information, special skill undertaken to apply it = duty will arise.

Present case no contemplation of receiving anything like a formal or detailed report such as might
be given by someone charged with the duty the bank provided a brief expression of opinion in relation
to creditworthiness and D was only obliged to give an honest answer and had effectively disclaimed an
assumption of duty of care also relevant that no opportunity for search or a full report this was an
instant report with a disclaimer no duty of care was owed.
Q: will the bank always be off the hook with such disclaimer?
A: effect of a disclaimer in this context is always going to be a question of construction in a
context of negligent misstatements, the existence of a disclaimer goes to the question of reliance so it
may well be that a clear disclaimer will lead a court to find that reliance on particular statements has
not been reasonable some sort of dangers been flagged to the recipient and they shouldnt rely on it.
Other considerations: Advice provided was not a formal report
Had it been more a formal report, different views might have been reached regarding the disclaimer.
Importance of Hedley Byrne v Heller

Found that even without a contractual/fiduciary relationship, a duty may be owed by one to another
and that this could be said to arise where there was a special relationship between the parties.
Different categories of plaintiffs:
1. Intended user
relationship b/w parties can readily be established, especially when they have K b/w
them
2. The known but unintended user
Much more problematic
3. The unintended and unknown user
Much more problematic
Australian approach to the duty question
1. # 2 party case (advisor negligent supplying information directly to P normally provided at
Ps requests)
2. #3 party case (relationship b/w P and D is indirect) (D supplying information to 3 rd party
often under K but PEL suffered by a P who was not a party to that contract b/c information
was passed on to P somehow and P relied on it
Indeterminacy / remoteness concerns Australian courts have taken a stricter approach to #3 party cases
Spread of information, difficult for advisor to predict liability, harder to cover themselves with insurance.
Key Australian case after Hedley Byrne MLC v Evatt
Short point HCA decision overruled by Privy Council - Privy Councils reversal was subsequently
reconsidered by HCA, subsequently affirmed by HCA in Shaddock v Parramatta
Note about special skill doesnt need to be a special advisor or hold special skills
Knowledge: It is enough that the recipient believes the speaker to possess the capacity or opportunity for
judgment and whether reliance by P is reasonable depends on: occasion of the interchange b/w parties,
relevant position of the parties in relation to knowledge and expertise, whether they had the capacity to
exercise judgment, whether they had their own professional advisors, etc.
Reliance means by which the Ds words havent effected P words must actually influence Ps
behavior order to have the requisite causative effect there must be a connection b/w the words and the
loss suffered also relevant whether D issued a disclaimer alongside that information / advice (Hedley
Byrne) question of vulnerability tend to be enrolled in question of reasonable reliance as well in the
context of negligent misstatement - Q: could the P have reasonably protected himself against the loss.
Shaddock v Parramatta
P succeeded in relation to the written inquiry, not the telephone inquiry because of the context in which it
was made. The written inquiry identified why the developer wanted the info, how much it meant to him,
purpose of the inquiry, sums of money were made known to the council at least in a broad sense, and
there was quite clearly a reliance. So the nature of the inquiry made clear the gravity of the inquiry and
the importance attached by the developer by the answer. A further element that was key to the decision
was the counsels was the sole repository of this information, it was under their control and there was no
other way that the developer could obtain such information himself. Importantly, it followed a practice of
giving information in relation to these matters. HCA also took the opportunity to reassert the principle
that Barwick CJ set out in Evatt before it was overturned so Shaddock is the source of authority for these
principles.
whenever a person gives information or advise to another on a serious important in circumstances where
the speaker realizes or ought to realise that he is being trusted to give the best of his information or advice
as a basis for action on the part of the other party and it is reasonable in the circumstances for the other
party to act on that information or advice, the speaker comes under a duty to exercise reasonable care in
the provision of the information or advice he chooses to give Barwick CJ from MLC v Evatt
Elements
1. The speaker must realise that the recipient of the information or advice intends to act on it in
connection with a serious or business matter
2. The circumstances (including the relative position of the parties) must make it reasonable for the
recipient to seek, or accept, and rely on the information or advice.
Mason J: existence of DoC doesnt depend on knowledge on the part of the speaker as to the precise use
to which the information will be put, its enough it he knows or ought to know that the inquirer is
requesting it for a serious purpose that he proposes to act on it and he may suffer loss if that information
or advice is proved to be inaccurate.
Held: there was a duty in respect of the written inquiry but not the telephone inquiry to an unidentified
person.
Where information has been volunteered, not requested by P, volunteered by announcement
San Sebastian v The Minister
P developers suing for loss sustained resulting from alleged negligence on the part of the state
planning authority & also the second respondents (City of Sydney) respondents had prepared and
published a draft plan for the redevelopment of the Woolloomooloo area the draft proposal would have
allowed higher density development in the area P bought lands, arguably in reliance of draft plans
which was abandoned by planning authorities P were not successful - particular draft proposal wasnt
thought to be a representation that was capable of being relied on court observed that draft planning
instruments like these are creatures of administrative and political process so theyre likey to be altered or
revoked developers are well aware of this court particularly noted that introduction of a development
plan inevitably generates planning and political pressure for changes at the instances of administrators,
commercial interests, property owners, residents and other interest groups in this context, there was no
assurance that the draft plan was going to be continuously and inflexibly apply going forward it was an
expression of present intention and future expectation developers & business people should not have
relied it as a foundation for investment purposes they should have made their own assessment, obtained
their own professional advice to make the judgment call it wasnt reasonable for P to rely on the
proposal developers could get their advice from town planners who would have stressed the draft
nature of the instrument majority in obiter statement noted that a duty might arise in respect of even
volunteered information if D:
1. Has a special skill
2. Warrants the informations correctness
3. Invites the P to rely on it
4. Intends the P to rely on it
5. Has a financial interests in the P so relying
Australian authority that provided some support for the proposition that duties are owed to 3rd parties even
if the D did not intend to induce that 3rd party to use that information - BT Australian v Rained & Horne
San Sebastian is the authority for the proposition that where info is to be volunteered into the world, a
fairly firm representation needs to be made
HCA then revisited issues of DoC in Tepko, all members of the court approved and applied the Barwick
formulation again as a statement of the law, - developer case
Tepko v Water Board (2001)
Boards estimate 2.5 million -> bank foreclosed the deal -> revised to 1.7 million in a week
Ps argument foreclosure could have been avoided if the alleged negligent misstatement hadnt been
made and they would have been able to proceed with the project
HCA Held: 4:3, no duty was owed relied on Evatt principles, emphasizing that knowledge
requirements under those principles emphasized the need for caution lest a duty of care be imposed upon
a party who has no appreciation of, and couldnt be expected to appreciate, the implication of making an
error Mr Neil had failed to inform the Board prior to giving the original estimate of his relationship
with the bank including that prospect of foreclosure so the Board didnt have a complete appreciation
of the implications of making an error in giving an estimate the majority felt that the Bank had been
kept in the dark about a particular financing transaction - so knowledge of serious purpose wasnt
established here by the majority there was a degree of specificity required by the HCA in this case
leading judgment identified number of factors that pointed against the duty: (1) wasnt the practice of the
Board to answer these inquiries, (2) in relation to reliance, the court found that it wasnt reasonable for Mr
Neil to rely on the costing estimate given the identity and relevant position of the parties, (3) Board (D)
was a reluctant participant, (4) Mr Neil (P) had access to his own expert advice which he utilised, (5)
provisional () nature of the advice (estimate) made it unreasonable to impose a duty on the
Board.
Knowledge requirements divided court -interesting case all approved Evatt formulation but - strong
minority judgments issued by Kirby & Callinnan JJ that considered that it would enough that the Board
knew that the figures were required for a serious financial purpose lecturer agrees with minority

Tepko v Water Board-

Facts P, property developer, wanted to subdivide some rural property; in

order to receive approval for subdivision needed to connect land to water
supply; P sought loan from bank; Bank concerned with cost of proposed
development- wanted to check it wouldnt be too expensive to connect
land with water supply; property developer approached the water board
for an estimate; water board said its not their expertise; gave a ball park
upper limit of expense [assumed worst]; bank took one look at figure and
balked- they exercised a right to appoint a receiver to the property; P
incurred PEL

Held Water Board under NO DUTY

Reasoning:

(i) Responsibility: No voluntary undertaking of responsibility- Information

not volunteered; rather, drawn out from them (reluctant)

(ii) Reasonable reliance: Water Board was not in a position where it was
reasonable for P to rely on its information (Not set up to give information
of this nature); Further, in the circumstances (see iv) it was not reasonable
to rely on the information

(iii) Speakers knowledge of reliance: Water Board did not know (and
did not ought to have known) that P was relying on its information to
provide to bank

(iv) Circumstances: Water Board did not know the reason why the P
needed the estimate (i.e. to prove to bank that property is affordable);
Board had no concept of possible ramifications for advice being provided;
Further, Tepco could have gotten expert advice on the matter

Negligent misstatement ctd; professional liability; damage to third party

Q: Does the duty of care of the auditor extend to those 3rd parties who rely on their advice or are the
auditors duties in giving these advices confined to the clients company for which the auditor actually
prepared the report?
 No privity of K here, 3rd party has to rely on tort for cause of action.
Imposing liability in respect of the 3rd party raises some issues of policies issues of
indeterminacy liability will be relatively determinate if the auditor was liable only to the people or
companies that he deals directly and only in respect of transactions the auditor actually knew about
auditors are then able to take steps (insurance, set fees, include disclaimer) to protect themselves
BT Australia Ltd [1983]
There was a duty owed to passive 3rd parties P suffered loss as result of Ds advice even though
they didnt rely on the information / advice themselves D was a property developer D valued a unit
(property) at the request of unit trustee, D at least knew the purpose for which the valuation was sought
D knew that the valuation will be used by the trustee in the exercise of its functions as trustee and
investment manager wasnt such a great leap to fix the D with knowledge - knowledge that relevant
holders of the unit would suffer a loss if the valuation was misleading and the unit trustee relied on it
relevant Ps, who were indirectly relying on the information, were held to be an identifiable class on the
basis of this case, it appeared that duty could be owed in 3rd party caused provided that D knew that 3rd
party would be indirectly relying on that advice / information Q: how far the courts would go in this
context
Caparo Industries - UK HL
Lord Oliver: factors illustrative of House of Lords approach
Criticisms: Smaller investor (no capacity for individual inquiry) v Large corporate investor (able to make
own inquiries)
Decision: House of Lords at least contemplated the possibility that auditor may be liable to a 3 rd party if
that auditor knew that 3rd parties will be likely to rely on audited accounts for a particular purpose without
individual inquiry
Esanda Finance Corp
Focus on Brennan CJ at [252]
-In every case, it is necessary for the P to allege and prove that the D knew or ought reasonably to have
known that the information or advice would be communicated to the P, either individually or as a member
of an identified class, that the information or advice would be so communicated for a purpose that would
be very likely to lead the P to enter into a transaction of the kinds that the P does enter into and that it
would be very likely that the P would enter into such a transaction in reliance on the information and
advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice
should be unsound.
Also be aware of McHugh J at [275]
...the position in Australia with respect to liability for purely economic loss caused by negligent
misstatement is that, absent a statement to a particular person in response to a particular request for
information or advice or an assumption of responsibility to the P for that statement, it will be difficult to
establish the requisite duty of care unless there is an intention to induce the recipient of the information or
advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a
D that the information or advice will communicated to the plaintiff is not enoughNevertheless, the
decisions have all emphasised that a lack of an intention to induce the P to act or refrain from acting is not
necessarily fatal to a Ps claim because other factors may be present that obviate the need for such an
intention.
Given rise to considerable uncertainty regarding importance of Ds intention in three party
cases
More confusing the fact that D doesnt have that intention to induce is not fatal to the
claim not really sure where that leaves us
Factors that may have supported a DoC in Esanda
P pleaded that D foresaw or reasonably to have foreseen that a member of a class might rely on those
accounts. But there was nothing additional pleaded as the foundation for that duty. Court held that
something more was required.
In a three party situation, look at what the court identified had not been pleaded in Escanda
it can assist in arguments.
[260] Toohey and Guadron JJ outlined how it was not pleaded that Escanda approached Peat Marwick for
information or advice; it was not pleaded that that Peat Marwick knew that Esanda was proposing to
enter into the transaction in question or any transaction with Excel or its associated companies, it was not
pleaded that Peat Marwick knew that Excels 1989 accounts or their report on the accounts would be
communicated to Esanda or any other financial provider with respect to the obtaining of the finance or for
any other purpose. Had one or more of those matters been pleaded, Esanda might have brought itself
within the duty of care recognized by Barwick CJ in Mutual Life & Citizens Assurance.
[262] It was also not pleaded that Peat Marwick prepared the accounts and the audit certificate for the
purpose of inducing Esanda or others to enter into financial transaction with Excel or its associate
companies. Nor it was pleaded that they intended that Esanda or finance providers generally should act
upon the accounts or the audit certificate in deciding to enter into financial transactions with Excel or its
associated companies. Moreover, it was neither pleaded that Peat Marwick expressly or impliedly invited
Esanda or finance providers generally to act on the basis that the accounts were accurate nor that they had
an interest in Esanda so acting. Had one of more those matters been pleaded, Esanda would have found
support in San Sebastian Pty Ltd.
These are not tests for duties but factors which may or may not lead to the finding that there
was a duty imposed on the defendant.
McHugh J: felt that duty shouldnt be imposed because such finding can impact on the cost of auditing
services, decreased competition for the provision of those services, reduce the services of those services,
difficult situation of auditors hiding of figures from directors,
The result of extending liability would be out of all proportion and contrary to the public
interest in relation to the impacts that it would have on the availability on the auditing
services.
ABN AMRO Bank v Bathurst Reg Council [2014]
Bathurst Council and others in NSW had millions of ratepayers funds to invest sought a good return
by law, they were only allowed to invest in financial products that had AAA+ rating ABN AMRO knew
this, developed heavily complicated financial product to sell to counsels they went to an rating agency
to get a rating and was awarded AAA+ - various assumption was made to this rating (there were pressure)
 they shouldnt have rated it AAA+ - counsels made the investment global financial crisis counsels
lost 70% of their investment
Focus: landmark factor ratings agency was held among other things to have a duty to exercise
reasonable care in forming and having reasonable grounds for the opinion expressed by the rating rating
agency was found liable for negligent misstatement (a rare case) in particular, it was found that the
rating agency negligently made assumptions about volatility which was unjustified based on the facts
known to them three party case court affirmed the principles set out by Barwick CJ in Mutual Life &
Shaddock (recently affirmed in Tepco)
1. Speaker must realise that the recipient of the information intends to act on it in connection
with serious or business matter

-> court emphasized that the duty is imposed where the information and advice is communicated
to an identifiable class of people provided that reliance criteria is satisfied as well doesnt need
to know each individual class, just needed to be aware of them as an identifiable class
McHugh Js observation in Perry [107] liability is indeterminate only when it cannot be realistically
calculated if both the likely number of claims and the nature of them can be reasonably calculated, it
cannot be said that imposing a duty on D will render that person liable for N determinate amount, N
determinate time and N determinate class so on.
2. The circumstances, including the relative position of the parties, must make it reasonable for
the recipient to seek, to accept and to rely on the utterance of the speaker.
Information does not need to be requested but purpose of the information is critical.
So there must be a known reasonable reliance.
Here, the court emphasized that recipient of information/advice is owed a duty by a speaker if:
(a) that person is a part of a class to whom the statement/advice is generally directed
(b) reliance on the statement or advice by a member of the class is consistent with the substance of
the purpose for which the statement is made or advice given
It is for these reasons that the court distinguished this case, ABN AMRO, and situation in Caparo, court
was looking at the purpose of these audit reports and it was held that audit company owed a duty to
the company and possibly to its shareholders but not to a lender or a creditor SMP (rating agency)
owed the counsels and the local government broker a duty to exercise reasonable care in forming and to
have reasonable grounds for the opinion expressed by the rating this duty did not require SMP to
issue the correct rating but only to exercise reasonable care in forming it SMP submitted whole range
of things but one of its key argument was that the nature of the conduct (its publication of credit rating
opinions) amounts to a predictive opinion about the future likelihood of repayment by an issuer
SMP did thousands of these opinions a year which distributed it through their websites SMP argued
that effect of imposing liability would be to turn predictive opinions into guarantees and to expose it to
indeterminate liabilities SMP didnt know the identities of the ultimate investors nor their numbers
court didnt consider any issues of indeterminacy while SMP may not have known precise identity/
number of investors, SMP was aware of the investors as a member of a class - an essential
characteristics of that class was to purchase that financial product - court felt that S&P knew what
it needed to know & S&P knew that ABN AMRO obtained and paid for this rating for the sole purpose of
communicating that rating to interested parties so that those parties could consider the rating in making
their investments in the product S&P knew the size, minimum level of subscription, (they could actually
work out max level of investors ~80) - S&Ps potential liability would be limited to 10 year period (period
for the financial product) S&P knew that all of those potential investors would rely on its opinion as to
the creditworthy of the product in making their investment decisions in terms of reasonableness of that
reliance, S&Ps business was to provide these independent expert opinions held itself out as doing so
publicly explained its ratings and the only information as to the creditworthiness was the rating by S&Ps
rating - in the context of negligent misstatements, courts tends to factors of vulnerability absorbed into
reliance court considered the vulnerability of the counsel in the context of reasonable reliance
counsels could not guess or replicate to do their own modelling exercise to come to their own rating
they had no means to protect themselves relevance of disclaimers: existence of a disclaimer may be
relevant to question of reasonable reliance court noted that for a disclaimer to be effective, it needs to
be displayed prominently court also looked at the content of the disclaimer to discuss their
effectiveness no representation was made as to the accuracy/ completeness of this information
statement of opinion not facts court held that for S&P to disclaim responsibility it was required to say
so in a very clear words court characterized the rating not as an advice but rather as an expert opinion as
to the creditworthiness of the financial product disclaimer did not have any effect on representation that
S&P had reasonable grounds for its opinion

Negligent Misstatements Strategy

#1 Start with 2 staged Barwick formulation (approved in Tepco and Shaddock)
-knowledge
-reasonable reliance
#2 Take note of additional criteria going to reliance (discussed in Tepco)
-relevant position of the parties
-availibility of expert evidence
-etc
#3 if dealing with three party situation
-pay particular attention to specificity of knowledge requirement
-> What is required by the tests in terms of knowledge of particular transaction and class
of P affected
-Escanda
-are there some additional constraints that made be justified in a three party context? (open Q)
-remember that ABN AMRO returned to Barwick formulation even in three party case
 How to answer questions #2
Importance: Ds state of mind has range of implications

Deceit Derry v Peak could hold that action in deceit only lies on proof that the maker of the
statement knew of its falsity or was reckless as to its truth or falsity
Negligent misrepresentation may be incurred as long as the D ought to have known that the
words were deceived
S18 ACL strict incurred where it is absent Ds intention/negligence

Need to consider the overlap between these liabilities & situations where they dont overlap
S18 ACL v Common Law
S18 broader than common law concerned with any conduct thats misleading or deceptive not just
misrepresentation but narrower because it applies only where the parties are acting in trade or in
commerce common law isnt restricted to parties acting in trade or commerce that way common law
misrepresentation can happen in relation to any K words in trade or commerce have a narrower meaning
than acting in the course of business (need to know Badenach v Calvert [2016]) ACL is both broader and
narrower in some sense than common law actions in tort & K arent limited to trade or commerce but if
you can bring your action under ACL, the remedies available are more extensive i.e. can get damages
for tort (ss243, 237, 236) ACL effectively allows damages for what would be considered as an innocent
misrepresentation under the common law
Professional Negligence to contractual parties & 3rd parties
(to cover later)
Liability in negligence for purely economic loss loss from damage to third party property
Distinction b/w physical loss & purely economic loss

RailCorp New South Wales v Flour () Australia Pty Ltd

-No K b/w Railcorp & Alpcross (subcontractor)

-claim in tort
-primary judge: Alpcross owed Railcorp a duty to exercise reasonable care and skill in carrying out its
sub-contracting work and it breached that duty in not following a particular construction method when it
relayed the track the negligence caused the derailment
-on appeal, Alpcross argued that Railcorps loss its settlement reached with SRA was purely economic
loss argued that loss was not consequential on any injury to Railcorps property Alpcross argued that it
was SRAs train that was physically damaged -Alpcross argued that circumstances of the case did not
warrant recovery from purely economic loss, it wasnt an exceptional situation Alpcross argument: the
SRA train, which left the train was damaged, SRA passengers were injured, this led to a claim by SRA on
Railcorp and payment by Railcorp of the settlement sum, rail-track and other infrastructure owned by
Railcorp was also damaged by the train after it derailed but that damage to Railcorp did not lead to a
claim by and payment to the SRA, Railcorps damage was independent of the economic loss (economic
loss would have been suffered whether or not Railcorps rail infrastructure was damaged as the train
derailed) Court of Appeal dismissed it found that loss was consequent on damage caused by Alpcross
to Railcorp and SRAs own property McFarlan JA [129] the damage to the train and SRA
passengers, the resulting claim by SRA on Railcorp and payment of the settlement sum by Railcorp to
SRA, were consequent on damage to the track caused by the faulty work of Alpcross ie loss was
consequential on property damage to the plaintiff, and not purely economic loss. Prior to that work being
done, the relevant part of the track was in a state so that trains could safely pass over it. After the work
was done, the track was unsafe. These physical defects in the track were negligently caused by Alpcross
which became prior to the derailment, liable in tort for the cost of repair of the track. Before that damage
was repaired or even detected, that damage to the rail caused the train to derail with consequent economic
loss being suffered by Railcorp. So the loss suffered by R by paying SRA was not a purely economic loss
but loss consequent upon negligent damage to Railcorps own property. So principles for recovery of PEL
was not applicable here. This was classified as losses that were consequent on property damage (physical
damage to the track), wasnt regarded as PEL. Meaning of consequential = flowing from (irrespective
of direct or indirect).
Negligent act or omission that damages properties owned by 3rd party as a result of which P suffers
some economic loss
-loss usually arises b/c of relationship b/w P & 3 rd parties
*physical proximity
*contractual relationship (but not always so this loss is sometimes called relational loss)
-law hasnt always allowed recovery for this losses like negligent misstatements, its been long
recognized that there is a range of policy reasons that highlight the need to place some limit on the extent
to which a negligent party can be liable in these circumstances what the courts did originally in this
particular context was they developed an exclusionary rule which said that P cannot recover economic
loss consequent upon damage to property unless P had a proprietary or possessory interest in that property
(PEL hasnt been recoverable in relation to this category, these damages were only recoverable by a P
against a negligent party where that economic loss was consequent on damage to Ps property)
developed by Queens Bench by Cattle v Stockton Waterworks (rejected by HCA, affirmed in UK AU
& UK differ on PEL)
Caltex Oil v The Dredge Willemstad

Caltex Oil Oil refinery A owns underwater pipeline being pumped under harbour to factory that
belongs to B; C, operator of dredge, cuts pipeline in process of cleaning seabed; A can sue C
for property damage (consequential economic loss) whereas B can sue C for pure economic
loss (B doesnt own any property at all, but relying on supply of oil to generate business)

Caltex Oil

Facts D, operating dredge at bottom of harbour, cuts pipeline that delivers oil to Caltex.
For owner of pipeline = damage to property; For Caltex; the oil doesnt gain ownership of oil until
it arrives; therefore, damage to 3rd party property causing PEL (Case arose in the context of
damage to 3rd party property)

Held Limited Utility Recognised liability for negligent conduct causing PEL

Justice Gibbs (principle authority) [Reasonable foreseeability of loss that will be suffered by
specific individual, as opposed to an ascertainable class of people]

1. Liability can arise as a matter of principle

2. Just reasonable foreseeability will not be enough

3. D needs to have had knowledge of the P that suffered the loss as a specific individual, and
not the P as an ascertainable class of possible plaintiffs (In the circumstances of the case, the D
ought to have known that Caltex would have suffered a loss; Employees of dredging party knew
that the pipeline led from refinery to Caltex terminal and should have known that it was the
physical means of transferring the oil and, in fact, the pipeline appeared to have been designed
solely for this purpose of delivering oil to Caltex (VS facilities with a more general utility, e.g.
electricity circuit/telephone wire affecting a whole neighbourhood)

4. Factor in knowledge = Physical proximity between what happened and the Ps property (P
and the owner of the pipeline were engaged in a common adventure- i.e. wound up physically)

Justice Stevens: [proximity] (not particularly helpful)

Proposed a test of proximity in determining liability based on policy considerations with salient
features and referred to:

The fact that the D would have known that the damage was inherently likely to cause the P
loss
Fact that the D already owed a duty to the owner of the pipeline
Fact that the damages claim would have been a direct consequence of cutting the pipeline
(not removed consequence)

Justice Mason [rejected idea of proximity] [preferred the Gibbs view] If you can reasonably
forsee that a specific individual as a distinct person as opposed to a general class of people will
suffer loss, that will create duty

Justice Jacobs: [physical propinquity- didnt go anywhere because he didnt expand on test for
determining when parties are in physical propinquity and when they are not] where there is an
act/omission of D that has a physical effect, and this has a foreseeable effect on the P (trying to
stay as close as possible to the area of negligence for property damage)
Justice Murphy: [general liability- didnt go anywhere] only judge who recognised liability
generally (didnt add any criteria on top of reasonable foreseeability test)

Christopher v Fiji Gas (1993) (loss of earning)

Facts P = crew of fishing trawler (Antonia); fishing trawler and catch was damaged by the
Master of Fiji Gas (no property damage because P didnt own the fishing trawler but used it
habitually; nor did it own the catch- salary was calculated by reference to the size of the catch);
as a result of damage to 3rd party property, suffered PEL (couldnt work, lost salary)

Issue Did Fiji Gas owe a duty of care to the crew of Antonia in light of the PEL they suffered as
a result of damage to 3rd party property?

Held NO! On basis of Gibbs test [ID of the individual vs ascertainable class]; No evidence that
D knew anything of the specific crew of the Antonia; Only knowledge that could be inferred was
that there was a crew and the crew was few in number, but this didnt make a difference in
judgment (Now, this seems quite unreasonable, because if you have a standard crew that
doesnt change, its not difficult to work out who the crew are demonstrates that the Gibbs test
is quite absolute)