Objective Notes: W300 – Agreements, rights & responsibilities UNIT 15 - MANUAL TWO ECONOMIC LOSS 1 Pure economic loss (PEL) 2 All losses = econ since relate to financial consequences but dictionary definition = relating to business or of paying costs so in Neg = loss of profit/ trade; Damages normally relate to harm - physical injuries, repair/ replacement costs, loss of earnings etc – so = financial losses arising from damage by def’s Neg conduct but PEL = not arising from physical injury/ damage to claimant; Why there are special rules re recovery of PEL 3/4 To constrain liab since PEL potentially limitless - without contact with/ knowledge of claimants, defs liab for losses, numbers/ extent innumerable, financial liabs potentially colossal so floodgate concerns which rules function to prevent; To provide commercial uncertainty as unrestricted liab renders obtaining insurance protection impossible because cover needed & if defs met damages themselves, financial ruin would impair ability of commerce to function. Unfair to defs, so claimants must take out their own insurance re PEL which is economically viable as insurers’ risks limited only to claimants’ potential losses & placing burden on defs would result in enormous premiums (even assuming such cover is available) because of colossal potential liability – anyone likely to be harmed economically. Historical development & current position re Neg acts/ omissions Pre-1970s no liab for PEL but always was for econ losses directly from physical harm to claimants & their property & irrespective of cause no liab for PEL not consequential to claimant’s own property being damaged; Where A suffers econ losses because B has damaged C’s property, courts consistently held B has no liab to A & in Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] some hazards must be accepted since if such claims permitted no end to them so better to disallow PEL independent of physical damage; Losses spread over community rather than sole liab of def but where neg conduct causes physical harm to persons/ property losses recoverable re physical loss/ lost profits therefrom but not PEL independent of physical damage; Where claimant has no proprietary interest in damaged property, no claim (Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon) [1986]); Where PEL results from acquiring defective goods, no claim but Anns v Merton LBC [1978] & Junior Brooks Ltd v Veitchi Ltd [1983] held PEL was recoverable in certain circumstances but floodgate concerns resulted in D & F Estates Ltd v Church Commissioners for England [1989] holding no action arises for econ loss unrelated to actual/ apprehended physical damage & Page 1 Objective Notes: W300 – Agreements, rights & responsibilities Murphy v Brentwood DC [1990] overruled Anns - no liab for PEL arising from Neg conduct/ omissions. 5 Neg misstatements 6 Oral/ written communication can result in ‘harm’, especially where untrue embracing damage to individuals’ reputations (defamation), physical injury through shock (psychiatric harm) & damage where claimant relies on words & takes action based on them (false statements); Pre-1964 no right of action where econ loss caused by Neg statements & position was same as losses through neg acts/ omissions & where neither fiduciary nor contractual relationships, false statements carelessly made not actionable even if ‘victim’ acted on such to their detriment (Candler v Crane Christmas & Co [1951]) so no common law no remedy for harm caused by neg false statements. Law following Hedley Byrne & Caparo Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]: o As law treats neg words differently to neg acts, duty of care may arise where there is special relationship - party seeking advice relies on other party taking reasonable care & other party knew or ought to have known enquirer was so relying on him, objective standard; o Where def provides statement he’s accepted responsibility for it & must exercise reasonable care in the circumstances & may be liab if statement negligently given; o Where, without contract, party with special skills undertakes to apply that skill to assist another, he has duty of care, irrespective of that skill being exercised by acts or words & where party so placed that others will reasonably rely on his skills & he takes it on himself to provide info to another who he knows/ should know will rely on it, duty arises, irrelevant that he does so without specific charge – if he performs service negligently, having agreed to do it, other party may be able to recover any losses in Neg; o Where relationship creates responsibility to those who rely on & act on info provided, duty deemed voluntarily accepted/ undertaken = relationship equivalent to contract but party not undertaking responsibility where he declares that he is not, so disclaimer may avoid liab; Impact of Hedley Byrne = where special relationship between advisor/ advisee duty of care arises where neg statements cause econ loss but claimant must show he relied on def’s skill/ judgment, def knew/ ought to have known claimant so relying & in circumstances reasonable for claimant to so rely; Sufficiently special relationships exist where person possessing special skill undertakes to exercise such skills to benefit another party relying on it & holds themselves out as possessing such skills where it is foreseeable that others will rely on them (Cornish v Midland Bank Plc [1985]) but where party is friend & provides advice, duty does not exist unless special circumstances pertain (Chaudry v Prabhakar [1989]). Page 2 Objective Notes: W300 – Agreements, rights & responsibilities 7 Caparo Industries Plc v Dickman [1990] – o To establish duty of care, must be (1) reasonable foresight of harm; (2) sufficient proximate relationship whereby advice required for purpose, described specifically or generally, made known actually/ inferentially to advisor at time of giving advice, advisor knows actually/ inferentially that advice will be communicated to advisee (either individual or member of ascertainable class) to be used by him for the purpose & without independent enquiry; & it is so used to advisee’s detriment; & (3) fair, just & reasonable to impose duty; o Duty not owed by auditors to public generally relying on accounts for share dealing or to individual shareholders but to company/ shareholders as a body, for purposes of controlling company o Proximity found where (1) statement communicated by def to claimant but not necessary for def to know would be to a specific individual provided he knew (a) would be communicated to a particular group/ class & (b) claimant likely to be a member thereof; (2) communication made specifically re particular transaction & suffices if particular type of transaction; & (3) very likely that claimant would rely on statement in deciding whether to make transaction; o Where neg action in preparing statements causes harm to 3rd parties liab arises where special relationship exists between advisor/ subject sufficient to create duty of care – employers’ references (Spring v Guardian Assurance Plc [1994]), solicitors to prospective beneficiaries (White v Jones [1995]). Disclaimers & UCTA 19977 In Hedley Byrne, despite liab being created in principle, Lords held general exclusion stated sufficient to avoid liab but position altered by UCTA in respect of torts where def acting in course of business (s.1(3)) & S.2(1) prohibits exclusion re death/ injury, s.2(2) requires other exclusions/ limitations to be reasonable which, by s.11(3) re Neg requires that, in respect of any such notice, reasonable/ fair to permit reliance on it having regard to circumstances prevailing when liab arose or would have arisen but for notice; Examples of what is reasonable not provided but, in practice, considerations are (1) when was claimant made aware of disclaimer – note reasonable if not done before incident; (2) where/ how displayed & legibility; (3) was advice provided free or at charge – where not free, disclaimer should be narrower; & (4) what excluded/ limited – wider the disclaimer, more likely it’s unreasonable; Smith v Eric S Bush/ Harris v Wyre Forest District Council [1989] – where reasonably foreseeable that negligent advice will cause party to suffer damage & there is proximity between parties duty of care is imposed since (1) proximity arose from surveyor’s knowledge that purchasers almost inevitably rely on report & from fact that prospective purchaser pays his fee & it’s fair/ reasonable to impose duty where advice given in professional capacity since does not create indeterminate liab –limited to house value (which can be insured against) & doesn’t create liab to indefinite class/ group Page 3 Objective Notes: W300 – Agreements, rights & responsibilities 8 – liab limited to purchaser, not subsequent purchasers; & (2) advice given in course of business so UCTA disclaimer provisions applied &, in circumstances, did not meet reasonableness requirements; Reasonableness very much circumstance dependent & varies from case to case – no exhaustive lists of factors in determining whether requirements met but courts look at each party’s respective bargaining powers, whether info could be obtained/ verified from another source, difficulty of task being undertaken & practical consequences of disclaimer in light of Smith v Bush. Deceit Def makes false statement by fact, words or conduct & knows it is or may be false or is either reckless as to veracity or makes it without believing it to be true, intends claimant/ class including claimant to act on it & claimant shows did act on it & has thereby suffered damage; Rep may be as to fact, law or opinion, where based on fact giving false impression of facts, & may be oral, written or implied by conduct but silence does not = grounds unless it withholds info rendering rep false & where def not appear wilfully false in making statement but honestly if mistakenly believed it to be true, not deceit (Derry v Peek [1889]); Claimant must show (1) def intended him to act on rep & not relevant whether rep was made directly to him –suffices if def knew would be passed to claimant/ class of which claimant was member; (2) effective causation – rep caused action he took so if it did not induce him to act, no liab even if shown that def made false rep intending claimant to act on it; & (3) suffered damage from relying/ acting on rep & damages not measured under Wagon Mound reasonable foreseeable tests but under re Polemis – all losses directly resulting from the statement. 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