Introduction
Over the last century the law of torts has undergone incredible change. This development
is a direct result of both, the evolution of societal norms, and the massive growth of
society itself. For example, what was acceptable treatment of employees at the turn of
this century, would within today’s society in many cases, attract criminal sanctions.
Additionally the growth and advancement of our environment guarantees that a limitless
range of unprecendented situations may arise. The sum of these factors has ensured that
the High Court readily encounters areas of law where direction is needed.
Pure economic loss is a timely example of an area of law, where the High court in a
plethora of recent judgements, has attempted to provide guidance. The question of
awarding pure economic loss, is by no means a recent phenomenon, as evidenced by the
case of Lumley v Gye (1853) 2 El & Bl 216. However the drastic changes which have
shaped society since the turn of the century, has meant that the instances of pure
economic loss are no longer regarded as an anomaly.
“The needs of the litigant or potential litigant, the legal practitioner and the trial judge should
guide the formulation of the applicable principles. “per McHugh J Perre v Apand
As such a responsibility has been placed in the judgements of this class to provide
guidance.
The objectives of this essay are; firstly, to provide the reader with a working knowledge
as to what pure economic loss is. Secondly, to prepare an historical account, showing the
development of pure economic over the years. Thirdly, to canvass the different
approaches adopted by the High court in dealing with the area of pure economic loss,
with specific reference to the recent judgement of Perre v Apand. Finally, conclude as to
what the current direction of the High court is in dealing with matters of pure economic
loss.
What is Pure Economic Loss?
Pure economic loss is an action under the tort of negligence. Consequently, as in most
categories of negligence, the elements of duty, breach, damage and any relevant defences,
must be in contemplation. However the establishment of these elements, specifically the
question of duty, is different under P.E.L. than that of negligence causing physical
damage to person or property.
“…… the only damage sustained by Mrs Maloney, was mere economic loss in the sense that it
was distinct from, and not consequent upon, ordinary physical injury to person or property”as per
the joint judgement of Mason CJ, Deane and Gaudron JJ, in Bryan v Maloney at section 5.
The above passage makes reference to the main difference between the two categories.
Namely that pure economic loss is a pecuniary disadvantage, which is not consequential
on any injury to the plaintiff’s person or property. It is because of this, that often the
damage suffered under pure economic loss arises out of a different relationship between
tortfeasor and plaintiff. Thus a successful action in P.E.L. requires the establishment of
“something more ”as per Lord Oliver in Murphy v Brentwood District Council[1991] 1
AC 398 at 487. The classification of this “something more “is open to many policy
considerations. Balancing these policy considerations with the situation on hand has been
the problem faced by the courts for many years.
Historical Background
"The exclusionary rule" traced to the decision of Cattle v Stockton Waterworks (1875) LR
10 QB 453, meant the common law offered no remedy to person’s suffering economic
loss in the absence of reasonably foreseeable harm causing damage to the plaintiff
personally. Blackburn J in Cattle v Stockton at 457, construed that the plaintiff could not
recover the loss because the damage suffered was not a "proximate and direct
consequence of the defendant's wrongful acts". The primary justification of the
“exclusionary rule ”lies in the reasoning behind the policy consideration of indeterminate
liability. Cardozo CJ in Ultramares Corporation v Touche 174 NE 441 at 444 (1931),
commented on the unattractive proposition of exposing defendants to a potential liability
"in an indeterminate amount for an indeterminate time to an indeterminate class". It is
argued that to do so would burden the defendant with a liability disproportionate to their
culpability. Despite this fear of indeterminacy, categories have developed where people
can recover damages as a result of pure economic loss.
Negligent misstatement
In 1964 the English decision of Hedley Byrne v Heller saw the recovery of economic loss
resulting from negligent misstatement. This proved to be the first “exception” to the
exclusionary rule. The elements deemed essential for existence of a duty in such an
action were,
“…the possession of special skill by the defendant, known to the plaintiff and relied upon by
him, and the existence of a special relationship between the parties …” as per Stephen J in Caltex
Oil v The Dredge “Willemstad” at ?
By establishing these elements the plaintiff could then show that a special relationship or
“proximity” (“nearness or closeness” as per Kirby in P V A) existed, distinguishing their
situation from the “exclusionary rule”. This was applied in the Australian decision of
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords, however the HC
recognized that the key ingredient for the establishment of a duty lies in the degree of the
plaintiff’s vulnerability to the defendant’s statement. In Essanda v PMH, an important
factor in denying a duty of care was that the plaintiffs were sophisticated investors well
able in the circumstances to protect themselves. If it was within the plaintiff’s ability to
be able to verify the accuracy of the statement (as it was found to be in Essanda), then
there didn’t exist sufficient vulnerability and therefore no duty.
Economic loss resulting from damage to property of another
Caltex Oil v The Dredge “Willemstad”, was a decision of the HCA were recovery of
economic loss resulting from damage to property of another succeeded. Previously
irrecoverable, the decision in Caltex signified the move away from the exclusionary rule
within Australia. The finding was reliant upon the defendant’s lack of care and
knowledge of the plaintiff’s vulnerability. In Candlewood Navigation Corporation Ltd v
Mitsui OSK Lines Ltd [1986] AC 1, the decision in Caltex was criticized for having given
no clear ratio. Nonetheless as McHugh J pointed out in P V A “in Caltex Oil (Australia)
Pty Ltd v The Dredge "Willemstad"[85], this Court rejected the exclusionary rule, and
nearly 25 years later there should be no turning back.”
Failure of a professional person to perform an undertaking or service properly
The decision of Hill v Van Erp in 1997 highlighted the position of the HC for the
recovery of economic loss under this category. It was found that a duty was owed from a
solicitor to the intended beneficiary to ensure that they fulfilled the wishes of the testator.
The HC favoured the approach of incrementally developing the law in novel categories
cases, as outlined in the judgements of Dawson and Toohey JJ. No longer was the test of
“proximity” (Deane J Jaensch v Coffey) acceptable as an indicator of duty.
Economic loss resulting from defective construction of buildings
Anns v Merton London Borough Council (1978) gave us the two tiered test for deciding
whether a duty exists in novel categories of pure economic loss. Bryan v Maloney was an
Australian decision of the same division.
Current direction of the High court