Negligence: Duty of Care ‘Special Scenarios’ (I) – Pure Economic Loss Flashcards
Caparo v Dickman (1990) [also seen in the Formulation of Duty deck]
This case actually involved pure economic loss. Investors sought to sue auditors that overvalued a company. ‘Pure economic loss’ occurs where the ‘loss’ attributed to the alleged negligent act is wholly monetary; it has no relation to e.g. injury to persons or property (Lord Bridge, at p. 618).
Lord Bridge proceeds to discuss whether a duty of care can exist without an assumption of responsibility; i.e. the statement was ‘not in the language’ of assuming responsibility. He holds that it is not enough to show that you owed a duty generally to C in a particular capacity; a particular purpose has to be ascertained that D knew about (p. 621).
In this case, there was a lack of proximity between the auditors and the claimants in Caparo since the latter used the report for a different purpose than intended.
Spartan Steel (1973)
An example of the ‘general rule’ to PEL is seen here (N.B.: precision is good for exams! This case did not create the general rule - it is simply an illustration of consequential vs. purely economic loss).
D’s negligently cut power supply to a factory; it shut down and sued D for negligence in three respects:
- Metal already in the furnace at the time (£368)
- Profit on the melts in progress when the power was cut (£400)
- Profits on four further melts which were not possible to actuate during the power cut (£1767)
Lord Denning held that the third ‘head’ could not be recoverable, as it constituted PEL; this is a question of policy: “Whenever the courts set bounds to the damages recoverable - saying that they are, or are not, too remote - they do it as a matter of policy so as to limit the liability of the defendant” (p. 36).
Edmund Davies LJ dissents, arguing that it should be an ‘all or nothing’ situation regarding the profit lost as a result of the physical damage to the material (second head) and the profit lost on metals where there was no physical change; both losses of profit were equally foreseeable and direct consequences of the negligent act (p. 41).
D&F Estates Ltd v Church Comrs for England and Wales (1989)
If you discover a defect, then you have not suffered an injury in the first place. Annoying, but not able to sue.
The potential to suffer property damage isn’t enough to claim the cost of remedial work; “no physical damage has [yet] been caused” (Lord Bridge at p. 206)
Murphy v Brentwood (1991)
This case overrules Anns v Merton. In a similar vein to D&F, it held that the potential to suffer an injury is not enough to establish a duty; “The purchaser may incur expense in putting right the defect, or, more probably, discard the article. In either case the loss is purely economic” (Lord Keith at p. 465). Lord Keith goes on to say that Anns did not follow any principle at all, but rather served as an example of “judicial legislation” (p. 471).
At p. 478, Lord Bridge rejects the ‘complex structure’ argument relating to houses; i.e. it is not damage to the ‘house’ per se; it is damage to specifically the e.g. piping (so you have suffered property damage, as one part of the house can ‘damage’ another part).
Targett v Torfaen BC (1992)
This case exhibits the limits of Murphy v Brentwood.
C fell down stairs that were badly lit + no handrail. Argued that this was a breach of duty of care owed to him by the Council (as C has complained before).
Council argues that according to Murphy if the defect was there when C moved in, nothing can be claimed.
However, C complained beforehand. There was thus sufficient notice. C was thus allowed the claim. Murphy is simply a ‘general principle’ to be followed, but it does not establish that no claim can be established under no circumstances (Sir Donald Nicholls VC at p. 37). The law has to be ‘realistic’, and admit that in circumstances such as these even though C had knowledge of the existence of the danger, it does not always enable a person to avoid the danger (p. 37).
Defensive Premises Act 1972
Regarding scenarios involving e.g. a third-party contractor.
s. 1: Duty to build dwellings properly -
(1) A person taking on work for or in connection with the provision of a dwelling (whether the dwelling is provided by the erection or by the conversion or enlargement of a building) owes a duty—
(a) if the dwelling is provided to the order of any person, to that person; and
(b) without prejudice to paragraph (a) above, to every person who acquires an interest (whether legal or equitable) in the dwelling;
to see that the work which he takes on is done in a workmanlike or, as the case may be, professional manner, with proper materials and so that as regards that work the dwelling will be fit for habitation when completed.
Hedley Byrne v Heller (1964) [also seen in the Formulation of Duty deck]
It is possible to assume liability in circumstances of pure economic loss - but not on the facts of this case. There is a difference between negligent misstatements and negligent acts; “words are more volatile than deeds…they are dangerous and can cause vast financial damage” (Lord Pearce, p. 534).
Lord Reid (p. 487) summarises how you can be liable for PEL:
If someone asks for your advice…
(1) you can give advice
(2) you can shut up
(3) give advice, and then say you are not accepting responsibility for anything acted upon it
If you do (1) you could subsequently be liable! In other words, if I know that you will act upon my advice, I must act accordingly. Therefore, where you do assume responsibility without a disclaimer for the economic welfare of the claimant, you subsequently have a duty to take reasonable care.
Lord Devlin - criticising the ‘extreme’ approach taken against PEL liability so far, writes that it is “nonsense” to draw such a distinction (p. 517).
In sum, the essential elements of Hedley Byrne are:
1) Assumption of Responsibility
2) Negligent Statement
3) Reasonable Reliance on Statement
4) Detriment/Loss as a Result
BNL v Playboy Club London (2018)
Burlington was acting on behalf of the Playboy Club, but this was not known by the bank. There is thus a third party involved.
You cannot assume responsibility for the third party (Playboy here) if you were not aware of the existence of the third party; this would lead to too broad a scope of liability. This applies even if C would have been indifferent, or even willing to assume responsibility if he had known (Lord Sumption at [16]). Thus places a limit on Hedley Byrne.
Williams v Natural Life Health Foods (1998)
Establishing that a company is a separate legal entity + reasonable reliance is only one element of the test of Hedley Bryne. Assumption of liability is also required.
This test is whether C could “reasonably rely on an assumption of personal responsibility by the individual who performed the services on behalf of the company…” (Lord Steyn at p. 837). It was eventually held that the circumstances were “insufficient to make [D] personally liable to the plaintiffs” (p. 837).
There was never an assumption of responsibility directly made by D himself, and it would, therefore, be unreasonable to rely upon such an alleged assumption.
Calvert v William Hill (2008) [also seen in the Legal Causation deck]
Claim failed as a matter of causation as C could not show that he would not have simply gone to another betting company. But was a duty of care owed in the first place by the bookmaker to C?
There was a duty of care since William Hill did assume responsibility; and although the claim fails because the losses were outside of the duty, by agreeing to put C on the ‘do not serve’ list the responsibility was created [Sir Anthony May P at [26]). This case, then, actually serves as an example of D assuming responsibility.
Chaudry v Prabhakar (1989)
The plaintiff was seeking to purchase a car and asked the defendant, her friend, to assist her on the basis that he claimed to be knowledgeable on the subject. She purchased a car on the recommendation of the defendant. The car had visible damage; however, the defendant did not enquire about the cause of this to the seller and simply informed the plaintiff that he was sure it had not been in any accidents. It later transpired that the car was badly unroadworthy due to damage caused in a serious previous accident. The plaintiff alleged that the defendant owed a duty of care in the provision of the advice which he had offered and had negligently breached this duty.
CoA was concerned that the liability of negligence should ‘creep into’ situations that ‘tortify’ what would otherwise be conversations between friends. But duty was technically conceived since D ‘talked up’ how much he knew about cars (he knew C would rely upon what he said).
Henderson v Merrett Syndicates (1995)
You can at the same time owe a duty in contract and tort; C can, therefore, ‘choose’ which remedy to claim (Lord Goff at p. 194).
Robinson v Jones (2011)
Even if in principle a builder can owe a duty of care in tort concurrent with the duty owed in the contract, can such a duty be excluded due to the building conditions?
It was held that the duties owed in tort relate to what contract provides. Even if we’re recognising that in contractual circumstances a duty of care arises, we have to see whether contractual and tortious duties extend in the same way. As such, they won’t always arise concomitantly (Jackson LJ at [76]). Jackson LJ goes on to say: “…Contractual obligations spring from the consent of the parties and the common law principle that contracts should be enforced. Tortious duties are imposed by law, as a matter of policy, in specific situations. Sometimes a particular set of facts may give rise to identical contractual and tortious duties, but self-evidently that is not always the case” [76].
Lejonvarn v Burgess (2018)
Mrs Lejonvarn, an architect and project manager, provided gratuitous project management and architectural services to her friends, Mr and Mrs Burgess, in relation to a garden landscaping project at their home. The project did not go well; there were cost overruns and the Burgesses and Mrs Lejonvarn were soon in disagreement. The Burgesses alleged that the agreed budget was £78,000, with Mrs Lejonvarn asserting it was £130,000. Mrs Lejonvarn was eventually replaced on the project by a well-known garden designer (who was originally discounted by the Burgesses because its quote was deemed too high).
The Burgesses claimed against Mrs Lejonvarn in contract and tort for the increased cost of completing the works (£265,000). It was held that the context was professional and that D was expected to be paid for later work (albeit not initially). She was also aware that C was relying upon her to perform those services, and that it was foreseeable that economic loss would occur if she did not (Hamblen J at [86]). However, the claim was eventually dismissed on the facts.
Steel v NRAM Ltd. (2018)
D was a solicitor but misrepresented her client’s position. NRAM knew the correct information but relied upon a negligently-written letter.
NRAM, therefore, had the information, but relied upon a faulty letter…
Held that it was not reasonable in this circumstance for the representee to rely on the admittedly negligent statement as they had all the relevant facts. Simply put, they should have checked for accuracy (Lord Wilson at [38]).
