Is the essential question in pure economic loss cases about the presence of a proximate relationship? Proximity has been used generally by the courts in negligence cases to
restrict undesirable liability, and it could be argued that there is
a lack of a principled basis in this area (as Stapleton does). The
question is whether the duty the defendant had was designed to
prevent the kind of loss the claimant suffered, meaning that in pure
economic loss claims a duty to prevent physical harm to the claimant,
or to their property, will not suffice (with the possible exception
of Greystoke, below). Some
believe that most if not all duties of care in regard to economic
loss have emerged from the principle in the case of Hedley
Byrne: where the claimant's
injury results from reasonably relying on a statement/advice from the
defendant, and the defendant knew/ought to have known that it was
likely they would do so, a duty of care will have arisen to exercise
due care and skill in making that statement/advice. However, as Lord
Oliver pointed out in Murphy,
it is 'not… necessarily to be assumed that the reliance cases form
the only possible category'. There are some instances of the courts
finding a duty of care in regards to economic loss that do not seem
to be based on the Hedley Byrne
example of proximity, such as White v Jones,
where I would argue it makes more sense to look at those cases for
separate principles. This is particularly so in regards to the fact
that Hedley Byrne has been treated as dealing with words and not
actions, and yet liability has been considered in cases of services
as well as advice (Henderson, Junior Books).
Proximity
as Non-Existent in Economic Loss Cases
Lord
Oliver suggests that categorising a case as a pure economic loss case
simply means that we need to look for something more than mere
reasonable foreseeability to establish proximity. This makes sense in
the light of the view that prevented a duty of care being found in
Spartan Steel:
although the infliction of personal injury or property damage
universally requires justification, pure economic loss does not. Similarly, the importance argument raised by Lord Devlin argues that
economic loss is rarely serious enough to justify liability. This, in
addition to a floodgates argument, prevented the court finding
sufficient proximity prior to the case of Hedley Byrne. But is this really fair? Although it was certainly true in the early 20th century that property and person meant more than economic loss, is that really true in the modern world? My understanding is that the biggest, most valuable thing that most people own is a house, and losing that is devastating, and yet when a builder builds your house wrong, the court says that's not a serious enough loss to require liability? This is clearly a terrible argument.
Hedley Byrne
Why then, did the
courts feel that there was sufficient proximity in that case (but for
the exclusion)? Multiple reasons were offered by their Lordships,
centring on a concept of 'assumption of responsibility' or a special
relationship. What this seems to have been intended to mean is that
'the party seeking seeking information or advice was trusting the
other to exercise such a degree of care as the circumstance required,
where it was reasonable for him to do that, and where the other gave
the information or advice when he knew or ought to have known that
the inquirer was relying on him.' (per Lord Reid in Hedley Byrne).
We can therefore be sure that if the relationship in question
matches this description, that there is sufficient proximity.
What
this formulation means is that assumptions of responsibility can be
found where reliance is implicitly invited, as in simply giving
advice as above, or where it is explicitly invited, as where it might
not have been reasonable for the claimant to rely, but the defendant
has expressly told them to. This can be by professing yourself an
expert (Mutual Life),
or simply by assuring someone that they can rely on you even though
the context is social not professional. Where the relationship is
professional, the extended principle in Hedley Byrne
applies, so that where a professional undertakes to do a task with a
certain degree of care and skill, a duty arises. This appears to have
been limited by Robinson v Jones
to professionals giving advice they expect others to rely on,
although Henderson v Merrett
shows that the idea can be used more widely (to implication by
professionals).
There
is, however, debate in regards to the principle in Hedley Byrne. Some
judges have held the concept of 'assumption of responsibility' as
empty as a proximity test, simply meaning that this is an instance
where the courts will impose liability and nothing more (see Lord
Griffiths in Smith v Eric Bush).
This is arguably because in that case liability would not have been
found under the Hedley Byrne
principle as stated above, and so the only way his Lordship could
find liability where he wanted it to be found was to reject that
aspect of the test (a glaring demonstration that the courts do no such thing as just follow the rules, and you know what? That's ok). McBride and Bagshaw argue that this was not
necessary, as not every instance of a duty of care in regard to pure
economic loss arising falls under Hedley Byrne.
This appears to be the correct view, and is enlarged below.
The apparent problem
that has arisen in cases of defective premises like Smith v Eric
Bush and Murphy is that they don't fall under the
proximity test in Hedley Byrne due to a lack of relationship
between the defendant and the claimant, and yet the courts have found
a duty of care. In Anns, the court avoided the issue proximity
by classing what has been clearly recognised as economic loss ever
since as physical damage, allowing the claimants to sue (sneaky). This was
rejected in Murphy (without technically overruling Anns) and yet in
Smith v Eric Bush a surveyor was found to have a duty of care in
relation to a house buyer, even though they conducted the survey at
the request of the mortgagee and not the buyer (three parties). It looks like this
cannot be established on Hedley Byrne's proximity test because
the surveyor had not assumed a responsibility to the buyer, only to
the mortgagee. Lord Templeman attempted to found a duty of care on
the relationship being 'akin to contract' and therefore proximate,
but Lord Jauncey pointed out that this was arguably an abuse of the
concept as stated by Lord Devlin in Hedley Byrne.
Lord Griffiths, and Lord Jauncey therefore held that there was a
sufficiently proximate relationship based on payment by the claimants
for the survey and the defendant's knowledge that it was highly
likely they would rely on it.
McBride
and Bagshaw offer a more developed explanation of Smith v
Eric Bush, which, they argue,
also explains other anomalous cases such as Spring v
Guardian Assurance and Phelps
v Hillingdon. They argue that in
all of these cases a duty of care arose because the defendants knew
that the claimants' futures would be ruined if they did a certain
positive act. This would mean that in cases attempting to follow
Smith v Eric Bush, the consequences for claimant of the defendant's
lack of care must be devastating financial loss, a somewhat stricter
requirement than high likelihood of reliance, which would
additionally prevent most if not all commercial cases of this type.
In Scullion v Bank of Scotland, no duty of care was found because it
was not reasonable for the claimant to rely: they could afford their
own surveyor. This would further explain cases of 'business
sterilisation', such as the Australian case of Perre,
where someone's entire business was at risk as a result of the tort.
Bagshaw would even argue that this is a distinct form of economic
loss because it involves impairment of legal freedoms. This view has
the appeal of covering a range of the cases that do not seem to fit
well with Hedley Byrne,
and avoids having to make Lord Griffith's argument that assumption of
responsibility is empty in cases that do fit.
It
is possible to trace Hedley Byrne
through Smith v Eric Bush
as an extension to the supply of information, even to third parties,
where there is sufficient foreseeability. It can be used to explain
Henderson v Merrett and
Junior Books on the
basis of Lord Goffs redefinition of assumption of responsibility as
entrusting someone with the conduct of your affairs and relying on
them, but there are at least two other grounds on which courts have
found a duty of care in relation to economic loss. Sufficient
proximity was found in Greystoke, and
in White v Jones.
These are two very different cases and must be addressed separately.
In
Greystoke, a collision
caused economic loss to cargo owners as a result of damage to a ship
because they had to pay for the cargo to be unloaded and reloaded.
They claimed against the owners of the ship that had collided with
the Greystoke, the Cheldale for a percentage value of how much they
were to blame for the collision (25%). This was a case of
'relational' economic loss, where a third party suffers economic loss
as the result of the defendant's damaging property belonging to
someone else. Perhaps surprisingly, the House of Lords allowed the
claim. This case does not seem to have caused the courts too much
difficulty, as efforts have been made to confine it to maritime law.
However, an analysis of this case similar to that of Page v
Smith in physical negligence can
give rise to a more general principle: the defendants had a duty not
to crash into the Greystoke based on reasonable foreseeability of
property damage to the claimant's cargo. The immediate result of the
breach of that duty was economic loss, which they were able to sue on
because it was arguably just a matter of luck that no property was in
fact damaged. However, unless a strongly analogous case arises, this
duty of care is not likely to come to the courts' attention often.
In
White v Jones, Lord
Browne-Wilkinson thought the case could be decided under Hedley Byrne
on the basis that neither mutuality nor reliance were needed in a
'special relationship' such as a fiduciary one: a negligent trustee
is liable to the beneficiary even if they've never met nor relied.
However, the other judges in the case could not imagine a Hedley
Byrne relationship without some form of reciprocal dealings: the
whole point of proximity is limiting the persons to whom the
defendant is liable, and without that requirement this limit
disappears. Lunney and Oliphant argue that this is just an anomalous
case decided on its facts in a special situation, but McBride and
Bagshaw attempt to explain it in terms of 'intermeddling'. They argue
that a duty of care arose between the solicitors and the daughters
because had they not been careless in their assistance, the daughters
would not have been prevented from obtaining the benefit that their
father wanted to confer. This looks surprisingly similar to the but
for test: but for the defendant's tort, the claimant would have
obtained a benefit. This is arguably a better explanation than simply
dismissing the case as 'practical justice' (Lord Goff) or an anomaly,
but again this principle is likely to only be an issue in strongly
similar cases, such as Carr-Glynn,
where it was simply followed on the facts.
Thus far, two views of
what proximity in relation to economic loss means have been examined:
one is that all such cases extend from Hedley v Byrne, the
other that many do, but that some special cases have developed their
own rules. There is another view held by those such as Yap: the idea
that in fact the only reason that courts won't impose
a duty of care in regards to economic loss is a concern to prevent
the defendant's exposure to indeterminate liability. This is central
to the concept of proximity, as I have argued in disagreeing with
Lord Browne-Wilkinson's analysis of White v Jones,
above. This would explain the frequency of cases that don't fit with
Hedley Byrne, without
having to attempt to develop specific principles to explain such
situation specific rules. However, it is perhaps too broad to simply
note a policy and decide all matters of law in regard to it: there
must be other concerns in setting the scope of liability such as the
extent to which the claimant has been wronged. I would argue,
therefore, that the best approach is to attempt to distil principles
from the cases to provide guidance in the future, and not simply to
rely on either Hedley Byrne, stretching it far from the original
concept, or a policy concern, to provide guidance as to when there is
a proximate relationship.
Incidentally, while we're talking about Hedley Byrne and things, there's a lovely mess in regard to the Hedley Byrne - Murphy Brentwood relationship worth mentioning. On one hand, we've got Hedley Byrne saying that there's a duty of care regarding pure economic loss when there's an assumption of responsibility and reliance, and on the other there's Murphy saying that builders are not liable when they screw up in building a house unless there's physical injury/property damage because otherwise it's unrecoverable pure economic loss. So far so good.
So then there's Pirelli v Oscar Faber. Decided under Hedley Byrne, it basically allowed recovery for pure economic loss, in a building case. Which makes perfect sense on Hedley Byrne: there was an assumption of responsibility by those doing the construction, and the occupier relied on it, with the result of the pure economic loss of having to rebuild it. Unfortunately it runs in the opposite direction to Murphy (awkward). The answer? The builder will continue not to be liable under Murphy, but the architect, surveyor, anybody that consults or advises on the building, they can be liable under Hedley Byrne. There is of course absolutely no difference between the surveyor and the builder in terms of the reliance, proximity, there's no policy reason, and really it's not even clear how to distinguish between a builder and a not-builder-but-involved-in-the-building-project-through-advice sort of a person.
The only hope is the Defective Premises Act 1972.
