Economic Loss
Negligence and Economic Loss
The courts have been traditionally reluctant to grant compensation for pure economic loss. The courts have sought to limit liability for so-called pure economic loss. This is economic loss which does not follow from property loss or personal injury.
Recovery for economic loss arising from deliberate and reckless acts is and has been allowed in some circumstances. Recovery for economic loss which follows as a result of personal injury or property damage has long been allowed in a claim based on negligence.
The courts have sought not to create too broad a principle of liability for economic loss, caused by negligence. If such a principle was to be allowed too broad a scope, it might make commercial life impossible. Accordingly, it was held, traditionally, that pure economic loss should be primarily a matter of contract law and restitution.
Over time, the traditional position eroded so that pure economic loss has become firmly established in some contexts, particularly negligent advice or the negligent provision of professional services.
Assumption of Duty & Omissions
A careless statement in itself will not create liability. There must be an assumption of responsibility.
Questions may arise as to whether, in the particular circumstances, the defendant assumed a duty to the claimant. Casual, off-the-cuff conversations are less likely to involve an assumption of responsibility than the formal giving of advice in a professional setting.
The courts are reluctant to impose a duty for pure omissions. A person may be liable for negligence if a partial statement itself is misleading.
In some cases, there may be a duty to clarify a statement that is literally true but is known to be misleading in context. There may be a duty to correct a statement that has been later rendered untrue by circumstances. The broad principles in this area are similar to those in respect of misstatements in the context of contracts.
Not Generally Recoverable
Economic loss arising directly out of physical damage is recoverable. However, economic loss is generally irrecoverable unless the economic loss flows from injury to a person or to damage to property other than the defective property itself.
In an Irish case in 1972, where excavation works had cut the electricity supply to a factory, recovery was denied on the basis that it constituted pure economic loss. Notwithstanding the negligent misstatement principles, the loss did not involve injury to the plaintiff’s person or property directly, so it was merely consequential loss.
It appears that the retrenchment by Supreme Court in the Glencar case makes it less likely that liability for economic loss will be readily awarded in new circumstances. The courts must proceed incrementally by analogy with existing cases. It must be just and reasonable to impose a duty of care in the circumstances.
The Supreme Court in Glencar required that in addition to foreseeability and proximity, the imposition of a duty of care in the circumstances must be just and reasonable. There must be no powerful public policy considerations against imposing the duty. The Supreme Court reserved for another occasion whether an economic loss is recoverable in actions for negligence other than a negligent misstatement. It did not overrule the Supreme Court’s earlier cases which had appeared to allow it in Ward v McMaster.
Contract and Negligence
The existence of a contractual relationship will not preclude a claim in negligence. The UK courts recognised a concurrent liability in contract and negligence. This concurrent liability has been recognised by the Supreme Court in Ireland Kennedy v. AIB.
The existence of a contractual relationship may be relevant in many contexts. The terms of the contract may limit the duty of care.
Where a contract defines the relationship and creates expectations, the courts will be reluctant to interpose additional liability in negligence. The courts, in effect, find that it is not reasonable to impose a duty of care where the contract determines the totality of the relationship.
Accordingly, in areas such as under company law, where the relationships of the parties are relatively well defined, the courts appear to be reluctant to find an additional duty of care over and above the duties defined by the company constitution and the shareholders’ agreement.
UK Developments
The 1963 House of Lords case of Hedley Byrne & Co Ltd v Heller & Partners Ltd. was a seminal case in the development of negligent misstatement. In that case, the House of Lords indicated that there was no logic or common sense in distinguishing between negligence causing physical injury and that causing pure economic loss.
However, recovery for pure economic loss arising from careless acts or omissions remained limited. In a number of cases where ongoing processes in factories were interfered with, recovery was allowed for the loss of material in production but not for an ongoing loss of profits. The traditional position was reasserted notwithstanding the apparent breadth of the Hedley Byrne case.
In another case where there was damage to a supply line of crucial importance to a business causing economic loss, recovery was disallowed. Similarly, where negligently undertaken building works caused pure economic loss, recovery was denied.
The House of Lords expanded the scope of negligence to allow recovery for pure economic loss arising out of construction defects in buildings in a case in 1983 (Junior Books). It ruled that there was sufficient proximity between a building owner and a sub-contractor to allow Junior Books to sue in negligence.
Ultimately, however, the relevant cases were effectively overruled in the late 1980s and early 1990s, and the House of Lords has reiterated this more traditional approach. The House of Lords in D & F Estates Ltd v Church Commissioners for England in 1989 described Junior Books as a “unique” case that could not be regarded as laying down any principle of general application.
Developments in Ireland
The Hedley Byrne case, which allowed for liability for negligent misstatement causing pure economic loss, was rapidly accepted in Ireland. It was acknowledged that circumstances might create a relationship between two parties, in which if one seeks information from the other and has given it, the other is under a duty to take reasonable care to ensure that the information is correct.
The negligent misstatement principle was held to apply in relation to a negligently drawn ill. In the UK and Ireland, it was held that a solicitor who prepared a will owes a duty of care to the beneficiary, notwithstanding the absence of a contractual relationship with him. The solicitor who was negligent could be liable for pure economic loss for the failed legacy.
Liability for negligent misstatement arises where there is a special relationship between the parties. Where the persons who may suffer loss are a limited or identifiable class of persons, who could be reasonably expected to rely on to their detriment, there may be sufficient proximity for the purpose of imposing liability.
Accordingly, where an inquiry was made of the Department of Agriculture and Fisheries in relation to the availability of fisheries licence, the requisite degree of proximity existed so that the duty of care applied.
Further Irish Developments
In Wildgust v. Bank of Ireland in 2006, the Supreme Court allowed a claim for negligent misstatement, notwithstanding that the person who had suffered the loss was unaware of the misstatement and had not relied on it. The misstatement had been such that a bank which had made an inquiry had been misled into believing that a policy had not lapsed so that it was not necessary to renew it.
The customer suffered a loss and the Supreme Court allowed the claim. The claimant was one of a very small number of persons who would suffer loss by reason of negligence.
A similar approach was taken in relation to the negligent reply to inquiries by a local authority regarding the status of a road. It was foreseeable that successors in the title would rely on the certificate. Accordingly, and on the same principles as the Wildgust case, it was not necessary to show that there was express reliance by the person who ultimately suffered a loss.
The incorrect representation must have caused the loss. There have been several cases where the Irish courts have upheld liability for negligent misstatement in the mishandling of cheques.
When a firm of auctioneers went outside their normal role and undertook to advise a buyer in relation to property in such a way that it was obvious that the buyers were relying on the advice, they were liable for breach of that duty, a special relationship and duty of care were held to arise, notwithstanding that the advice was outside the course of the defendant’s usual business.
Reference and Sources
Irish Books
Tully Tort Law in Ireland 2014
McMahon & Binchy Law of Torts 4ed 2013
McMahon & Binchy Case Book on the Law of Torts 3ed 2005
Connolly Tort Nutshell 2ed 2009
Quill Torts in Ireland 4ed 2014
Fahey Irish Tort Legislation 2015
Healy Principles of Irish Torts 2006
EU and UK Texts
Lunney, M. and K. Oliphant Tort law: text and materials. 5ed 2013
Peel, Edwin, Goudcamp, James Winfield and Jolowicz on tort 19 ed 2014
Horsey, K. and E. Rackley Tort law. 6ed edition 2019
Deakin, S., A. Johnson and B. Markesinis Markesinis and Deakin’s tort law 7ed 2012
Giliker, P. Tort 5ed 2014
McBride, N.J. and R. Bagshaw Tort law 6ed 2018
Steele, J. Tort law: text, cases and materials 4ed 2017
O’Sullivan, J., J. Morgan, S. Tofaris, M. Matthews and D. Howarth Hepple and Matthews’ tort: cases and materials 7ed 2015
Horsey, H. and E. Rackley Kidner’s casebook on torts 13ed 2015
Clerk & Lindsell on Torts 22ed 2019
Charlesworth & Percy on Negligence 14ed 2019