LWZ116 Lecture Notes - Lecture 9: Aust, Canadian National Railway, Floodgate
Lecture 9
Torts
Pure Economic Loss = Financial loss not causally connected to physical injury to the P’s own property or
person. For e.g. Defendant causes Plaintiff’s business to suffer, or investment to fall.
Consequential Economic Loss = Financial loss casually connected to physical damage to the P’s own person
or property.
We are talking about a legally recognised form of loss and will come under the DAMAGE element. So while
dealing with a problem, we should be looking at damage, remoteness because we are talking about a kind
of damage, however, it will mostly be a duty, which is a TYPE that will factor this KIND of damage.
Reasons for distinction between PEL and other forms of loss.
An issue of DAMAGE that is properly treated differently than other forms of loss
1. Physical Damage is Permanent Loss – of that social resource. PEL means shifting or resource from
one person to another i.e one getting rich at the cost of another.
2. Greater Value Placed on Personal and Property Interests – compared to commercial economic
interests. There is an emotional value attached to property for e.g if someone kills my dog viz.a.viz.
any dog, it does ot have the same value.
3. Economic Loss the Concern of Contract Law – thus to shift the focus from Contract law to Tort law
needs compelling reasons.
4. Risk of Indeterminate Liability - “liability in an indeterminate amount for an indeterminate time to
an indeterminate class”. Ultramares Corp v Touche (1931) 174 NE 441 (Cardozo CJ)
When we cause damage to person or property, generally the class of people injured will be limited.
I can easily, accidently injure a dozen people, however, it is difficult for me to accidently inure a 100
people, but I can accidently, financially injure a million people. Especially these days, we have an
interconnected economy.
5. High Costs of Insurance
6. Market Concerns – in a market economy we might think it is generally permissible to deliberately
inflict a certain amount of economic harm on our cometitors. Market competition inflicts harm on
each other vendor. That will make it difficult to seek damages in negligence.
However, in Hedley Byrnes v Heller, At least five distinct categories of pure economic loss claims have been
recognised, where there could be recovery for PEL.
1) Negligent Misrepresentation;
2) Negligent Performance of a Service;
3) Defective Products or Structures;
4) Relational Losses; and
5) Public Authority Liability
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Lecture 9
Torts
NEGLIGENT MISREPRESENTATION are statements (representations) made that are not in fact true (they
are a misstatement) that have been negligently made, and the focus here is on negligent
misrepresentations leading to pure economic loss.
Required Elements to Establish Claim - Queen v Cognos Inc [1993] 1 SC 87
1. The representation in question must be untrue, inaccurate, or misleading;
2. The representor must have acted negligently in making said misrepresentation;
3. The representee must have relied, in a reasonable manner, on said negligent misrepresentation;
and
4. The reliance must have been detrimental to the representee in the sense that damages resulted.’
TEST FOR DUTY of CARE –
1. Special Relationship: There must be a duty of care based on a ‘special relationship’ between the
representor and the representee;
•Voluntary Assumption; and/or
•Knowledge of Reasonable Reliance
Hedly Byrne v Heller & Partners [1963] 2 All ER 575
Mutual Life & Citizen Assurance Co Ltd v Evatt (1968) 122 CLR 556
•Reasonable Foreseeability & Reliance: the defendant ought reasonably to foresee that the
plaintiff will rely on his or her representation; and that such reliance would be reasonable
Day v Ost [1973] 2 NZLR 385 - Special circumstances may arise which render the administrator liable to the
contractor in tort. In Day v Ost, A subcontractor stopped work because he had not been paid by the main
contractor. The architect, employed by the owners, asked the subcontractor to re-start work assuring him
that he would be paid and that the main contractor had ample funds. The subcontractor carried on but
the main contractor went into liquidation leaving the subcontractor underpaid for his work. The court held
that the architect was liable for negligent misstatement under the rule in Hedley Byrne and Heller. The
architect was in a position to know that the client was in financial difficulties and by his gratuitous advice
assumed a responsibility to the subcontractor.
Mutual Life & Citizen Assurance Co Ltd v Evatt (1968) 122 CLR 556
In Candler v Crane, Christmas & Co [1951] 2 KB 164, where the Accountants negligently prepared a report
for a company. The company showed that report to a third party, who subsequently invested and lost
money, the issue was could the accountants be liable for the negligent preparation to the third party for
their loss. The Court held there was no liability since there was no Contract. However, Lord Denning
dissented, saying there could be a duty if the accountants knew of the transaction (investing) which would
result from their statement; in this case they were as they were present at the time the defendant decided
to invest.
In Hedley Byrne v Heller [1964] AC 465, Lord Reid held:
When pure financial loss results from negligent words, a duty of care will only exist for a
limited number of people, not all who listened to or read the words recovering damages.
A duty of care will arise when there is a type of 'special relationship'.
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Document Summary
Pure economic loss = financial loss not causally connected to physical injury to the p"s own property or person. For e. g. defendant causes plaintiff"s business to suffer, or investment to fall. Consequential economic loss = financial loss casually connected to physical damage to the p"s own person or property. We are talking about a legally recognised form of loss and will come under the damage element. Reasons for distinction between pel and other forms of loss. An issue of damage that is properly treated differently than other forms of loss: physical damage is permanent loss of that social resource. Pel means shifting or resource from one person to another i. e one getting rich at the cost of another: greater value placed on personal and property interests compared to commercial economic interests. Ultramares corp v touche (1931) 174 ne 441 (cardozo cj) When we cause damage to person or property, generally the class of people injured will be limited.
