Torts LWB133 Week 7
Semester 2, 2000
Pure Economic Loss
continued...
Action in Negligence
 Duty
 Breach
 Damage
Pure Economic Loss
 Category of damage
– not physical damage
– not consequential economic loss
Exclusionary Rule
 Traditionally no right to recover in
negligence for pure economic loss
 Recovery no longer excluded
– Hedley Byrne v Heller
– Caltex Oil v Dredge Willemsdad
No general rule
 No general rule which recognises existence
of a duty of care to avoid reasonably
foreseeable economic loss
Exceptions
 Possible to identify a number of exceptions
to rule that generally no duty of care owed
to avoid foreseeable economic loss
– first scenario in which duty found to be owed
• economic loss resulting from negligent misstatement
– Hedley Byrne v Heller
– Esanda
– exceptions not limited to cases of loss resulting
from negligent misstatement
Reluctance to find duty owed
 Policy considerations, for example;
– fear of indeterminate liability
• eg Caltex
– inconsistency with community standards re
what is ordinarily legitimate in the pursuit of
personal advantage
• eg Bryan v Maloney
Establishing a duty
 Reasonable foreseeability of economic loss
will never be sufficient
– compare with physical injury
• eg Deane J in Jeansch v Coffey
 Something more will always be required
Pursuit of a General Principle?
 Judicial attempt to define the something
more unsuccessful, for example;
– Anns v Merton London Borough Council
• two stage test
– Proximity
• Jaensch v Coffey
• San Sebastian
• Bryan v Maloney
– Incremental/Case by Case Approach
• Hill v Van Erp
Where are we now?
 Perre v Apand
– no uniform approach to establishing a duty of
care in a novel fact case
– no general acceptance that pursuit of general
principle was desirable or possible
• see eg per Gaudron J at 1194-5
– the law is still developing
Perre v Apand
 P - potato growers
– grown for export to WA market
 D - proved seed to Sparnons on nearby
property
– seed infected with bacterial wilt
 WA legislation prohibited import of
potatoes from within 20 K radius of affected
property
– P could not sell their potatoes in WA
Classification of P’s Loss
 P’s property not infected with the disease
– no physical damage to person or property of P
 Loss suffered was inability to sell potatoes
in WA
– pure economic loss
Issue for High court
 Did the defendant owe a duty of care to the
plaintiff to avoid the foreseeable risk of
economic loss?
Outcome
 All 7 justices allowed the Perre’s claim
Reasoning
 Primary policy concerns
– indeterminate liability
• High Court concluded this was not a problem here
– concern not to render ordinary business practice
tortious
• this was not a issue in this case
– was there a more appropriate remedy?
– Insurance not an issue
Four possible approaches to duty issue
 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
Common Features
 Is P vulnerable or dependent on D?
– were the plaintiffs otherwise able to protect
themselves?
 Was D in overall control of the situation?
 D’s knowledge
– of the Ps as an ascertained class
– of P’s vulnerability
 Is there physical/commercial closeness?
Previously decided cases
 Economic loss resulting from negligent
misstatement
 Economic loss resulting from damage to
the property of another
 Failure of a professional person to
perform an undertaking or service
properly
 Defective buildings
Spartan Steel & Alloys Ltd v Martin & Co
Plaintiff’s claim
 damaged material
– physical damage
 loss of profit on that material
– consequential economic loss
 loss of profits on further melts
– pure economic loss
Caltex Oil v The Dredge ‘Willemstad’
Alternative transport
Dredge
Oil spill
 loss suffered by Caltex
– oil lost from pipeline
• physical damage
– increased transportation costs
• pure economic loss
Limitation on the persons or class of persons to
whom duty of care owed for pure economic loss
 unanimous decision that duty was owed
to Caltex
 different reasoning adopted by each
member of the court
Reasoning
 Defendant has knowledge of plaintiff individually
not merely as member of unascertained class
– Gibbs and Mason JJ
 Sufficient proximity between tortious act and
injury
– Stephen J
 physical effect on the person or property of the
plaintiff
– Jacobs J
 No policy reasons to disallow recovery
– Murphy J
Attempts to Apply Caltex
 Christopher &Ors v The Motor Vessel “Fiji Gas”
– the view of the majority in Caltex was that damages based
upon purely economic loss not connected with damage to the
person or property of the plaintiff are not, in general,
recoverable
 Ball v Consolidated Rutile
Failure of a professional person to
perform an undertaking or service
properly
Does a solicitor who prepares a
will owe a duty of care to an
intended but disappointed
beneficiary?
Hill v Van Erp
 Brennan CJ
– accepted that practical justice tends in favour of a
remedy
– did not accept that duty arose through extension of
principles in Hedley Byrne
– necesary to define the elements additional to mere
foreseeability which would allow recovery
• claim only by intended but disappointed beneficiary
• duty owed is in the performance of work in respect of
which he owes a corresponding contractual duty to
the testator
Dawson J
 adopted incremental approach
 something more than reasonable
foreseeability is required to establish a
duty of care
• what is sufficient or necessary in one case is a
guide to what is sufficient or necessary in another
 proximity is result of a process of
reasoning; not the process itself
 relationship of proximity established by
assumption of responsibility and reliance
Toohey J
 agreed in general with the reasoning of
Dawson J
Gaudron J
 there were no policy factors which operated to deny the




existence of a duty of care
policy favoured the finding of a duty of care
the contractual relationship between the testator and
the solicitor was relevant
• a duty to a third party would only arise where
the alleged duty was consistent with the duty
owed to the client
the element of control was relevant
the nature of the loss suffered was the loss of:
• a precise legal right which, in turn, has resulted
in economic loss
Gummow J
 there were no policy reasons to disallow
recovery
 recognition of a duty did not interfere
with any existing legal right
• the facts of the case fell within a gap in the law
 duty arose as a result of a complex of
factors (at page 530)
Defective Buildings
 cases in which the plaintiff’s property is
and always has been defective
 traditionally no duty of care in tort
English cases
 1978 - Anns v Merton London Borough
Council
 1983 - Junior Books v Veitchi
 1989 - D&F Estates v Church
Commissioners for England
 1990 - Murphy v Brentwood C.C.
Liability of Builder for Defective
Foundations in Australia
 particular category of case involving
liability in tort for defective structures
 Bryan v Maloney
– diminution in value of the house categorised
as pure economic loss
Significance of Perre v Apand?
 No majority approval of incremental
approach
 Case by case approach
 Reasonable foreseeability of economic loss
not sufficient
 Identification of relevant factors
– emerging emphasis on vulnerability,
dependence and control?
 Policy considerations remain important