INTRODUCTION
Until the middle of the twentieth century the tort of negligence was very largely concerned with careless conduct resulting in personal injuries or damage to property. This essay explores ways to study the major growth areas of the last 50 years. As a matter of fact, the tort of negligence is often quite difficult for the following reasons. Firstly, there is a large volume of new case law. Secondly, there are conflicting policy aims and objectives. Thirdly, we need to remember that this is a policy device and different judges would take different view at different time. So, the cases are always totally consistent.
In this essay, we will also be looking at duty of care for pure economic loss and negligent misstatement.It is important to make sure for us to understand the law in this area and policy that drives it. In addition, we need to understand various situations under which pure economic loss might arise and we need also try to appreciate any cause for reform.
This essay will proceed in nine parts. Part I explores briefly on historical view of negligent misstatements and pure economic loss. Part II explores the meaning of pure economic loss. Part III explores the recovery of pure economic loss in policy consideration context. Part IV analyses the economic loss cases on negligent misstatements. Part V explains economic loss cases on performance of a service. Part VI explains economic loss cases on damage to another’s property. Part VII explains the current test in Malaysia in determining for negligent misstatement as a comparison with United Kingdom (hereinafter known as UK). Part VIII explores any possible reforms in UK and Malaysia. And, lastly Part IX is a conclusion.
Part I:Pure Economic Loss and Negligent Misstatements
We start at liability for pure economic loss and for negligent misstatements. It is important for us to remember that these are technically two areas of duty of care. They do not always go together. There are problems of duty of care in respect of pure economic loss. And, there are problems for duty of care for negligent-misstatements.
Now, many cases in real life concern both of these issues at a same time. But, it is possible to have a case that only involves pure economic loss or involves liability for statements.
Hedley Byrne v Heller[1]as a starting point which is a landmark House of Lords decision on negligent-misstatement. In this case, the defendant (D) bank made a statement about creditworthiness of a company to the claimant’s bank who then passed down to claimant. For the purpose of this case, the statement was argued to be negligent. The claimant relied on the statement and took large advertising campaign for the company but then did not get pay when the company became bankrupt.
Then, the claimant tried to sue the defendant bank for their careless statement. This case caused problem in relation to duty of care because the damage that been inflicted by careless words which would long been regarded as problematic. The court took the view that it was too onerous to make people liable for their careless statement for their everyday conversations. Because, this would;
a)open the floodgates
b)it would be unfair
c)and potentially recourse never lunch of litigation
Now, Hedley Byrne v Heller[2]is a case that happened at the time of House of Lords viewed itself absolutely bound by its previous decisions. In addition, there had been tendency until that point to take the view that there was no liability, no duty of care of careless words. Instead, the claimant would have to show dishonesty.
However, in Hedley Byrne v Heller,[3] House of Lords said this was misunderstanding over its earlier decisions in Derry v Peek,[4] saying that Derry was a case based on tort of deceit. And, therefore, it was not binding in negligent.
On top of that, House of Lords thought that they could potentially be a duty of care for careless words. But, there is a need of much more restrictive test based on;
a)special relationship
b)reasonable reliance
The degree of foreseeability is such that it is from the fact alone than the requisite proximity can be deduced. Although on the facts of Hedley Byrne v Heller,[5] there was no actual duty because the defendant gave an advice, clearly making it was ‘without responsibility’.
However, Hedley Byrne v Heller,[6] does pave a way for duty of care for statements in certain circumstances. It also important to realise in Hedley Byrne v Heller[7] that losses were pure economic loss which is again problematic kind of damage. The courts would concern with pure economic loss cases because they potentially open a floodgates. They potentially could be fraudulent or exaggerated claims. And, there are lots of policy considerations in play.
On top of that, Lord Pearce observed that some difference between the law of negligent misstatements and that in negligent acts was clear. Negligent misstatements created difficulties different from those of negligent in act.[8]
Part II:Meaning of Pure Economic Loss
In this part, we explore the meaning of pure economic loss.It is easy to understand by start considering physical damage. It is the easiest kind of damage to bring a claim for.
The term of pure economic loss that must be distinguished from economic loss where the former may be claimed in a tortious action where it flows not from personal injury or property damage.
The court is quite happy for duty of care to exist for physical damage. So, in Spartan Steel and Alloys Ltd v Martin and Company (Contractors) Ltd,[9]the damage metal is physical damage. Only value that physical damage by reference to cost of metal or in cases of something than can be repaired, the cost of repair. The damage metal could be sold and usual profit not made. The loss profit on damaged metal was economic loss consequent on physical damage and recoverable.
However, pure economic loss in another hand is purely financial or economic in nature. Its loss is not directly link to any physical damage to the claimant or to the claimant’s property. It can take in many forms and it can be in;
i)purely financial loss. As like in Hedley Byrne v Heller[10] where bad investment of time for which the claimant did not get paid; or
ii)it can be where in purely financial loss like the loss in heritance suffered by the beneficiary in Ross v Caunters[11]and White v Jones[12].
The second form of pure economic loss is lost profit in a shutdown as can be seen clearly in Spartan Steel’s case.[13] Moreover, the loss for pure economic loss is the cost of repairing inherently defective property or reduction in value when we discover that we have inherently defective property.
This is the result in the case of Murphy v Brentwood District Council[14]facts that overruled Anns v London Borough of Merton[15]. Lord Bridge at this point who said in his speech;
“...purely economic loss...is only recoverable in contract or in tort by reason of some special relationship of proximity which imposes on the tortfeasor a document to protect against economic loss.”[16]
Part III: The recovery of pure economic loss : policy consideration
The general rule is pure economic loss is irrecoverable. In fact, the courts are almost paranoid about it.
It can be seen that the law put less value on economic loss than it does to property or person. This is to improve a duty for pure economic loss would be onerous because such losses as list of policy reasons shown below that;
i)hard to calculate
ii)hard to verify
iii)open to floodgates
iv)open to fraudulent exaggerated claims
On top of this, there are also policy concerned about encouraging the right altitude, about the role of insurance, and the role of self-protection.
Part IV: Economic loss cases (i) : Negligent-misstatements
So, the general rule that pure economic loss is irrecoverable. But, there are exceptions to that rule. The main one is if we can bring the case within the rule of Hedley Byrne v Heller[17]. Now, we have to go back to Hedley Byrne v Heller[18] and see whether there could be a duty of care for negligent-misstatement and in that context, the duty could also cover the duty of pure economic loss.
House of Lords always insisted that we could not just rely on foresight of harm created duty for words. Instead, there must be a special relationship and reasonable reliance. In addition, special relationship possessed certain hallmark.
Firstly, as far as special skill or knowledge is concerned, we know that that would be liability for everyday conversation between ordinary people. And, in Hedley Byrne v Heller,[19] Lord Morris said on the need of special skill or knowledge, whether the defendant in a better position to know what he is talking about than the claimant.[20]
However, that was not the case though in Court of Appeal decision in Esso Petroleum Co v Mardon[21] where it was held that it was sufficient for the defendant held themselves out as having special skill or knowledge.
Secondly, the next requirement in Hedley Byrne[22] is there to be a formal considered advice rather than casual of cast a remark. As in Hedley Byrne,[23] they talked about this being made a contract without the need for consideration i.e the offer and acceptance of an advice where it can be argued when the parties may have an intention to create legal relations.
The third aspect of special relationship comes in the case of Caparo v Dickman,[24] stated that in addition to reasonable foreseeability, a relationship of proximity had to be established and the imposition of a duty must be fair, just and reasonable. And, where it was held that there cannot be a duty of care for general statement made to the world at large. That this could be used for any number of difference reasons. That would be too onerous or would open floodgates. Instead, it would be liability if the defendant gives specific advice for specific purpose.
In Heller Byrne v Heller,[25] the court was also looking at the context of the advice being given with the ‘assumption of responsibility’. If we remember in this case, the advice was given clearly ‘without responsibility’. And the House of Lords said based on the facts, that prevented the duty of care arising. But, that does not mean that every defendant could give advice using these two magic words ‘without responsibility’, and thereby, avoid liability.
In Smith v Eric Bush,[26] the House of Lords said such clauses if the defendant was a business X, defendant was subject to section 2 Unfair Contract Terms Act 1977 (UCTA1977).[27] This section says, the business X cannot avoid liability on the death or personal injury. And can only avoid liability for other damage if it could be reasonable to do so.[28]
Now, in Hedley Byrne,[29] the bank gave free advice whether there were no obligation to give advice at all. That might be reasonable for ‘without responsibility’ clause to stop the duty of care. But, if the defendant charges for the advice, it gains to make such a clause less likely to be reasonable.
Part V: Economic loss cases (ii) : Performance of a service
Now, Hedley Byrne[30] has paved a way for other cases where the duty of care have arisen, making the defendant liable for statements. But in slightly different circumstances.[31]
Now, in Ministry of Housing v Sharp[32], the Ministry of Housing’s statement to the prospective purchasers about charges on property caused loss to the claimant. Where they carelessly left the claimant charge of the statement they made. There was a duty because the defendant breached statutory duty.
In Ross v Caunters[33] where the solicitor breached fiduciary duty in relation to advice they gave about witnessing a will. The advice was given or instruction was given to testator. But it caused loss to the claimant. Therefore, there was a duty of care.
And, similarly in Spring v Guardian Assurance Plc,[34] although the claimant did not rely on the advice, it was relied on by the prospective employer who did not give the claimant the job. Give the important of preferences today’s age, and inadequacy of the information of remedy, the House of Lords thought that the duty of care should arise.
Hedley Byrne[35] also expanded in the field of providing professional services. So, in Henderson v Merret Syndicate Ltd,[36] there was a liability to the lord’s names because the defendant had assumed responsibility to provide reassurance services, professionally and reasonably.
Similarly, in White v Jones,[37] the solicitor had assumed responsibility to provide his services and prepare a will for the testator. This gave rise to a duty of care for the beneficiaries, who did not inherit because of the will was not prepared in time before the testator death. It was because the solicitor was well aware that the beneficiary would be relying on the solicitor to discharge his or her functions with due care.
Part VI: Economic Loss Cases (iii) : Damage to another’s property
We return to pure economic loss but outside the Hedley Byrne’s[38] context. We saw the general rule that the courts are reluctant to impose a duty of care for pure economic loss as in Spartan Steel’s case.[39]
Now, having said that pure economic loss is not usually recoverable, by viewing good rules in tort, there are lots of exceptions. We have seen exceptions in Hedley Byrne v Heller,[40] we have also seen that pure economic loss could be recovered in Ministry of Housing v Sharp[41] if there is a breach in statutory duty and there is a breach in fiduciary duty in Ross v Caunters[42] although there could be an exception based on House of Lords decision in Junior Books Ltd v Veitchi Co Ltd.[43]
The Junior Books’ case was not overruled, although its correctness has been doubted by the House of Lords.[44]
However, House of Lords in this case intended it to be a landmark decision, said that pure economic loss could be recovered if there was;
a)a relationship of sufficient proximity between the claimant and the defendant[45]
b)if pure economic loss was reasonably foreseeable[46]
c)There was no policy reason to preclude recovery[47]
In The Aliakmon[48]and Candlewood Navigation Co.,[49]the courts insisted that the claimant can only use Junior Books[50] if the claimant had suffered some physical damage as well.
Then in, Simaan General Contracting Co v Pilkington Glass[51] the Court of Appeal said, that Junior Books[52] can only be used if it was not being used to circumvent valid contractual change of liability[53].The loss was pure economic loss and the Court of Appeal said it was not the subject of a duty.
We have to contrast in the case of Anns v Merton[54] with Junior Books[55] where although there was a gained, the claimant main contractor and the defendant sub-contractor, there was no valid contractual change of liability in Junior Books[56] because the main contractor gone bankrupt and was not worth suing.
Part VII:The current test in Malaysia in determining for negligent misstatements
Malaysia takes a different path for developing their own law of negligent by disapproving the approach in Murphy Brentwood.[57] This happened in 1997 in Dr Abdul Hamid Abdul Rashid v Jurusan Malaysia Consultants[58]where MrJustice James Foong (as he was) urge preferred not to follow English precedent as he thought it could create injustice to the Malaysian citizen.
The decision from the learned judge was heavily influenced by the approach of Canadian Supreme Court in Ultramares Corp v Touche.[59] On top of that, a claim for economic loss is not limited to defective property but has far affected in all situations as to avoid inequity. This decision has been followed in the case of Stephen Phoa Cheng Loon & Ors v Highland Properties SdnBhdAnor.[60]
On appeal in MajlisPerbandaranAmpang Jaya v Stephen Phoa Cheng Loon & Ors,[61] the Federal Court allowed the fourth defendant’s appeal where it was not fair, just and reasonable to impose the city council (MPAJ) for after collapse losses suffered by the claimants. This decision shows that the possibility of succeeding in a pure economic loss suffered as a result of the local authorities negligent is irrecoverable.
Therefore, the pure economic loss may be recoverable if there is an assumption of responsibility in relation of loss suffered by the claimants to establish the proximity and foreseeability which are necessary between the relation of both parties.
Part VIII:Possible Reforms in UK and Malaysia
As far as UK are concerned, there is no new proposal put forward by the Law Commission or the government. However, it is worth to look the recent case in House of Lords in Customs and Excise Commissioners v Barclays Bank plc.[62] In a unanimous decision, the House in the present case found itself in the familiar position where the court faced a novel situation and applied the ‘threefold test’ as decided in Caparo’s case.
According to Lord Walker, the House recognised the ‘threefold test’ in Caparo’s case is labels, and that their usefulness is limited.[63]On top of that, in judgment by Lord Mance, he says that an ‘assumption of responsibility’ is a core area of liability for economic loss which derives from Hedley Byrne’s case.[64]The House concluded that no such duty arised.