The Law of Tort - Essay Example

A successful claim for pure economic loss like all claims for damages under the tort of negligence relies on the claimant proving three essential elements. They are the existence of a duty of care, a breach of that duty and causation. A duty of care can exist at both common and statutory law.(Flemming 1998)1 In Donoghue v Stevenson, the doctrine of the ‘duty of care’ was established. Lord Atkin explained that we are required to take all necessary precautions to prevent injury to our neighbors. ‘Who then in law is my neighbour? The answer seems to be persons who are so closely and directly affected by my act that I ought to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called to question’.( Donoghue v Stevenson [1932] AC 562 cited in Kidner, 2004) 2 In Anns v Merton London Borough Council the test for the duty of care was held to contain three primary functions.( Markesinis 1992, 619)3 The first was to determine the remoteness of damage. Secondly, the relationship between the parties must be of sufficient proximity to impose a duty of care. Thirdly, the imposition of a duty of care must be fair and just.(Anns v Merton London Borough Council [1978] AC 728 cited in Kidner 2004) 4 This three-tier test has been articulated in Caparo Industries Plc. v Dickman. (Caparo Industries Plc. v Dickman [1990] 1 All ER 568 cited in Kidner 2004 )5 Significant indicators of proximity are found in ascertaining the responsibilities of the relevant parties together with reliance issues. (Murphy v Brentwood District Council [1991] 1 AC 398 cited in Kidner 2004) 6 Whether or not the accident or damages are reasonably foreseeable will depend on the application of three questions. 1. Could it be reasonably foreseen that the plaintiff would be involved so that a duty of care is imposed? 2. Were the damages reasonably foreseeable? 3.Was the accident itself reasonably foreseeable? This was the ratio deciendi in Page v Smith.7( Page v Smith (1996) AC 155 cited in Kidner 2004) Once a claimant proves that a duty of care existed, the defendant breached that duty of care and that the damages were not remote he is not guaranteed to recover damages. There are certain areas in the tort of negligence where damages can be restricted.(Wier, 2006)8 Recovery for damages which are purely economical in nature is what might be termed an elusive area of the law of tort since recovery is restricted as a means of tightening the floodgates. The courts have struggled with setting guidelines for recovery of damages for pure economic loss. These judicial difficulties arise out of policy concerns rather than the failure of some logical rationale. There is a general concept that holding someone accountable for pure economic loss can have the result of imposing damages which is inconsistent with the degree of fault. Moreover, it is quite often the case that damages are incapable of accurate calculation. (Hedley, 2006)9 There is no all encompassing definition of the term ‘pure economic loss.’ However, it is generally accepted that pure economic loss refers to liability for certain tortuous claims that are not consequential upon personal injuries or death suffered by the claimant. Pure economic loss does not depend on liability in respect of the claimant’s property either. In Junior Books Ltd. v Veitchi Co. Ltd. the House of Lords identified four classes of cases where economic loss can be recovered. The four classes of cases were defined as ‘(1) where there is personal injury, and pecuniary loss consequential thereon; (2) where there is damage to property other than the thing itself, and consequential pecuniary loss; (3) where there is a threat of such damage or injury, and pecuniary loss in taking steps to remove it; and finally (4) where pecuniary loss is sustained in consequence of an act of the defender in circumstances where it is at least foreseeable to him that pecuniary loss will be caused to those who in his reasonable contemplation will rely on that act.’(Junior Books Ltd. v. Veitchi Co. Ltd. [1982] 3 201 at p. 265 cited in Kidner 2004)10 As noted previously, liability for economic loss is an area of Tort which has presented many difficulties for tortuous claims. The risk of opening the ‘floodgates’ obviates a necessity for the judiciary to draw restrictive lines and this approach can obviously truncate a viable victim’s claim for damages incurred as a result of the defendant’s negligence. The floodgates argument is ‘based on the fear of an unacceptably large number of claims arising from one incident of negligence.’(Wheat, 1992)11 With the floodgates argument as a guiding principle the courts attempt to deal with liability for economic loss is not very coherent, neither is it intellectually satisfying. A relaxation of the guidelines would only complicate matters by opening the floodgates and as such the practical problems are probably insuperable. Unfortunately, the judiciary’s focus is not based on sympathies for an individual victim, but rather on the community as a whole. Michael McGrath explains that the reason for the court’s reluctance to impose liability loosely in cases of pure economic loss is purely pragmatic. McGrath refers to the case of Ultramares Corporation v Touche (1931) 255 NY 170 to substantiate his claim by adding the reasoning of Cardozo CJ who said that there is generally a fear of imposing ‘a liability in an inderterminate amount for an inderterminate time for an inderterminate class.’ (McGrath. 1985 pp 350-377)12 Typically, a claim for pure economic loss is not recoverable in the law of tort on a claim in negligence. The rationale for this general rule was explained by Lord Denning in S.C.M Ltd v W.J. Whittall [1971] 1 QB 344. The reason was expressed as lying in public policy considerations.( S.C.M Ltd v W.J. Whittall [1971] 1 QB 344 cited in Kidner 2004)13 The rationale was enunciated more clearly in Cattle v. Stockton Waterworks Co. (1875) L.R. 10 Q.B. 453, by Blackburn J who noted that in a situation where a mine is flooded as a result of the negligent conduct of another, thousands of mine workers who suffer no personal injuries or property damage may suffer pure economic loss by reason of the resulting loss of jobs. The loss in such cases is that of the community not the contractor who might not have insurance coverage for such damages.(Cattle v. Stockton Waterworks Co. (1875) L.R. 10 Q.B. 453 cited in Kidner 2004)14 While it might appear to be unfair for the imposition of policies that subscribe to a practice that permit defendants who negligently cause serious damages to escape liability, Michael Jones, professor of Law at the University of Liverpool offers a justification for this rationale. Jones explains that ‘in the realm of pure economic loss…there may be sound economic reasons for limiting the range of potential liability. Plaintiffs who are at risk of suffering this form of loss are frequently in a better position to insure against the risk, and more cheaply, than potential defendants.’(Jones, 1995)15 In Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd Lord Denning M.R said the danger with permitting these kinds of claims is that it opens the door for an endless number of claims. While some might be genuine, there is a good chance that some claims for pure economic loss can be bogus. While the sincerity of these claims may be difficult to substantiate, harder still is the task of confirming whether the claimant made a genuine attempt to mitigate his damages.(Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 cited in Kidner 2004 )16 Tim Smith explains the exceptions to the general rule barring successful complaints based on pure economic loss. ‘If the loss suffered is:- a) connected with physical damage to property belonging to the claimant, b) connected with injury to the person of the claimant, then even if the loss is financial – it is not pure economic loss and is recoverable.’(Smith, 2007)17 The judiciary appears to have departed from the strict application of the rule against compensation in respect of pure economic loss. In general terms, the common approach taken by the courts is one that recognizes that when a plaintiff relies on the expertise of a defendant who invariably conducts himself negligently, the defendant is entitled to recover damages as a result. Lecture of Law at Cambridge College, Steve Hedley notes that ‘the tort of negligence is set for an expansion, to which no very obvious a priori limits can be set. Any suggested extension may be rejected by the courts if unjust, or if no principled route to liability can be found; but it will not be rejected on the ground that the claim is unprecedented, or seems to enter territory hitherto reserved for contract, or allows recovery for a loss which is purely economic.’(Hedley, 1995)18 Indeed, there have been cases in which the courts have held fast to the concept that pure economic recovery is possible where a professional negligently administers his expertise and the plaintiff suffers a loss as a result of it. In Hedley Byrne & Co Ltd v Heller & Partners, Easipower Ltd. asked Byrne to run an advertisement for the company, in response Byrne wanted to know the financial or credit standing of Easipower and made inquiries of Easipower’s bankers, Heller. The bankers replied that Easipower were in good credit standing. The statement was subsequently found to be negligent and Easipower went into liquidation. The court ruled that the relationship between Byrne and Heller was tantamount to a contract and Heller as a result owed Byrne a duty of care not to make statements that were negligent. Lord Devlin went on to say that the defendant was under a duty of care not to be negligent in cases where the plaintiff relied upon the defendant’s special skill and judgment. Lord Reid said that liability could even be founded if the defendant was only reasonably expected to rely on the defendant’s statement, provided the statement was not qualified. (Hedley Byrne & Co Ltd v Heller & Partners (1964) AC 465 cited in Kidner 2004)19 In Smith v Eric S. Bush, the defendant, a surveyor carried out a valuation for Abbey National. A prospective mortgagee relied upon the results of the valuation. It was held that the surveyor was liable as he gave advice as a professional and it was reasonably foreseeable that the mortgagee would likely rely on the surveyor’s valuation. (Smith v Eric S Bush (1995) 1 AC 831 cited in Kidner 2004)20 In another case a claimant’s friend was liable for negligently stating that a car that the friend intended to buy was in good condition and the friend subsequently discovered that the car had been involved in a traffic accident. (Chaudry v Prabhaker (1988) 3 ALL ER 718 cited in Kidner 2004)21 In cases regarding police investigations the courts are reluctant to impose liability in respect of damages despite the reliance placed on the outcome of the investigation. In Hill v. Chief Constable of West Yorkshire [1989] A.C. 53, the House of Lords opined that it was contrary to public policy to hold the police accountable for the manner in which they conducted a criminal investigation. (Kidner, 2004)22 The House of Lords was reluctant to extend the duty of care in respect of bankers in the ordinary administration of customer accounts. In Cmmr of Customs and Excise v Barclay’s Bank PLC [2006] the defendant bank was served with a Mareva injunction in respect of one of its customer accounts and failed to freeze the assets. Lord Hoffman said that it would be unfair to hold the bank accountable for an omission since this would have the impact of extending liability to others holding property to an infinite extent. ‘On being given notice of the order, they would all be under an obligation to take reasonable care to ensure that the defendant did not get his hands on the assets. Not sufficient, because there is no suggestion that, apart from the freezing order, the bank in carrying on its ordinary business would be under any duty to protect the position of the Commissioners.’(Cmmr. Of Customs and Excise v Barclay’s Bank Plc [2006])23 In White v Jones, [1995] 1 All ER 691, the House of Lords permitted a claim for pure economic loss where a solicitor failed to execute a will for a testator on a timely basis with the result that the testator died intestate. The potential beneficiaries sued the solicitor for the financial loss incurred by his failure to execute the will.( White v Jones, [1995] 1 All ER 691)24 In commenting on White v Jones, Hedley said that ‘the points that the claim is for pure economic loss, or involves a tort liability in a sphere where contractual claims would be more usual, or that the precedents for the claim are poorly-argued or even non- existent, are today of no substantial weight, being mentioned by the lords only to dismiss them contemptuously. The question is no longer whether the courts are prepared to countenance novel claims of pure economic loss, but rather of how rapidly they are prepared to extend the class of plaintiffs.’(Hedley, 1995)25 A strict adherence to the general principle that recovery of damages in respect of pure economic loss in the tort of negligence is not justified when lay persons rely on the expertise of professionals. It is not sufficient to argue that when a professional acts negligently and the person relying on his expertise can lodge a complaint on the basis of the contract. This argument fails simply because the duty of care expected of a professional is regulated by the tort of negligence and defined by both statute and common law in most cases. Even if a contract defines and governs the duty of care, it should not operate to deprive the plaintiff of the option of pursuing his claim in tort. If the defendant owed a duty of care to the plaintiff and was clearly in breach of that duty he suffers no prejudice by virtue of the plaintiff opting to pursue his claim under tort rather than contract. Bibliography Cmmr. Of Customs and Excise v Barclay’s Bank Plc [2006] http://www.publications.parliament.uk/pa/ld200506/ldjudgmt/jd060621/custom-2.htm Viewed February 11, 2007 Flemming, J.G. The Law of Tort. (London: Sweet and Maxwell, 1998) Hedley, S. Tort. (London: Butterworths, 2006) Hedley, Steve. Recovering Lost Legacies: White v Jones in the Lords. [1995] 1 Web JCLI http://webjcli.ncl.ac.uk/articles1/hedley1.html#murphy Viewed February 10, 2007 Jones, Michael. Liability for Psychiatric Illness – More Principle, Less Subtlety? [1995] 4 Web JCLI http://webjcli.ncl.ac.uk/articles4/jones4.html#policy Viewed February 7 2007 Kidner, R. Casebook on torts. (London: Oxford University Press, 2004) Markesinis, B.S./ Deakin, S.F. The Random Element of their Lordships Infallible Judgement: An Economic and Comparative Analysis of the Tort of Negligence from Anns to Murphy, (1992) 55 MLR 619 Mcgrath, Michael. The Recovery of Pure Economic Loss in Negligence--An Emerging Dichotomy. Oxford Journal of Legal Studies, Vol. 5, No. 3 (Winter, 1985) Smith, Tim. Economic Loss. http://www.deanscourt.co.uk/legal/econloss.html#1 Viewed February 7, 2007 Wheat, Kay. Law Commission Consultation Paper No 137 - Liability for Psychiatric Illness. [1992}2 Web JCLI http://webjcli.ncl.ac.uk/articles2/wheat2.html#affection Viewed February 10, 2007 Wier, T. Introduction to the Law of Tort. (London: Oxford University Press, 2006) Preparation Record Date 10.2.07 Start Time 14.00 hours Activity/ Reading Re-read question & notes Comment Seems to be asking for an examination the impact of floodgates policies restricting claims in economic loss against professions and how this shortchanges a claimant who suffered loss as a result of negligence on the part of professionals Notes for Future action Read the quotations in their context- print off R. Kidman Tort Cases on economic loss End Time 10.30pm 14.00 Duty of Care Application of DOC Case Law Start Jr Bks 16.00 16.00 Negligence Floodgates Earlier cases 18:00 18.00 Remedies Eco. Loss and the professional’s responsibility Recent cases 22.00 22.00 Law journals 02:00 11.02.07 8.00 Plan answer to question 9:00 9.00 Respond using notes Read More