Economic Loss Notes

Negligence and Economic Loss

PEL = economic loss not suffered consequentially of person/property dmg.

This is to be distinguished from economic loss which can be consequential of person/property dmg.

Loss only counts as consequential economic loss if it arises from damage to C’s own person/property. Loss which results from damage to another’s property is PEL.

Hedley Byrne v Heller (1964) – negligent misstatement (later extended to negligent provision of services in Henderson v Merrett Syndicates).

• FACTS: HB (firm of advertising agents) wanted to find out whether Easipower Ltd was creditworthy or not before they placed some advertising orders on Easipower’s behalf; HB’s bankers received a favourable reference of Heller (Easipower’s bankers) who gave the advice “without responsibility”; Easipower went into liquidation and HB were unable to recover from Easipower so sued Heller for breach of duty to take care not to mislead HB as to Easipower’s creditworthiness.

• HELD: Heller’s disclaimer of responsibility meant no DoC arose. But had Heller not excluded responsibility, it would have owed a duty to take care not to mislead HB as to Easipower’s creditworthiness. Judges’ reasons were vague and inconclusive, but tended to collectively focus on an “assumption of responsibility”.

• NB: The judges in Hedley Byrne do not speak with one voice – Devlin says must be ‘a relationship akin to contract except without consideration’ (IMPORTANT CASE TO READ IN FULL)

  • Lord Reid: The principle in Donoghue v Stevenson had no direct bearing on the instant case. Donoghue set out to reflect the standards of the reasonable man but reasonable people often stated opinions without taking care, so the law had to treat words and acts differently. It was clear that liability for negligent misstatement could not be founded on the Donoghue principle alone; something more was required, namely that the representor had expressly or impliedly undertaken responsibility for their statement. The representor impliedly undertakes responsibility when he gives advice without qualifying that he took no responsibility, yet while knowing that his advice was being relied on.

Lords Bridge, Roskill, Ackner and Oliver of Aylmerton in Caparo Industries v Dickman:

• Whilst recognising the importance of the underlying general principles common to the whole field of negligence, the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes.

  • Suggests that whether a DoC exists is less down to principles of general application but rather an incremental, analogy-based approach.

The UKHL in Commissioner for Customs & Excise v Barclays Bank (2006, UKHL) had a similar view; that the tests used in considering whether a defendant sued as causing PEL owed a duty of care disclosed no single common denominator by which liability could be determined and the court would focus its attention on the detailed circumstances of the case and the particular relationship between the parties in the context of their legal and factual situation taken as a whole.

• Lord Mance at [93]: “This review of authority confirms that there is no single common denominator, even in cases of economic loss, by which liability may be determined. In my view the threefold test of foreseeability, proximity and fairness, justice and reasonableness provides a convenient general framework although it operates at a high level of abstraction. The concept of assumption of responsibility is particularly useful in the two core categories of case identified by Lord Browne-Wilkinson in White v Jones, at p 274F-G, when it may effectively subsume all aspects of the threefold approach. But if all that is meant by voluntary assumption of responsibility is the voluntary assumption of responsibility for a task, rather than of liability towards the defendant, then questions of foreseeability, proximity and fairness, reasonableness and justice may become very relevant. In White v Jones itself there was no doubt that the solicitor had voluntarily undertaken responsibility for a task, but it was the very fact that he had done so for the testator, not the disappointed beneficiaries, that gave rise to the stark division of opinion in the House. Incrementalism operates as an important cross-check on any other approach.” (NB: While this is only authority/in relation to a D sued as causing PEL by negligence, I don’t see why it could not also be applied to DoCs in general.)

  • The two categories of cases of special relationship that were identified by Lord Browne-Wilkinson at p 274F-G in White v Jones were: “(1) where there was fiduciary relationship and (2) where the defendant has voluntarily answered a question or tenders skilled advice or services in circumstances where he knows or ought to know that an identified plaintiff will rely on his answers or advice. In both these categories the special relationship is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff’s affairs or by choosing to speak.”

• In Commissioner for Customs & Excise v Barclays Bank, the Bank was held not to have assumed a responsibility giving rise to a DoC because of the “involuntary nature of the bank’s involvement with the commissioners” – the bank, by law, was required to comply with the request for a freezing order (but failed to do so, hence the action in negligence), but this obligation does not give rise to an AoR as it is not voluntary.

  • In other words, the assumption of responsibility must be properly voluntary.

  • [100]: “The key question therefore is whether it is therefore fair, just and reasonable to recognise a duty? …” Lord Mance goes through the relevant factors:

    • (1) The floodgates argument carried no weight in this case, since “[t]he freezing orders define both the...

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