4. Pure economic loss and negligent misstatement

This chapter discusses the law on pure economic loss, which is loss that is not derived from physical injury, death, or property damage. It may be consequential, that is resulting from the acquisition of a defective product or property. More commonly, the issue arises due to a negligent misstatement, or provision of professional services. This is an area of commercial and professional importance where there has been a trend towards expansion in the area of negligent misstatement. The two key cases in this area are Murphy v Brentwood District Council and Hedley Byrne v Heller.

7. Special duty problems: economic loss

This chapter explains when and how the courts have found that a duty of care should be owed by defendants for purely economic loss. This differs from ‘consequential’ economic loss, where financial loss is suffered as a secondary consequence of another harm, such as personal injury or property damage. The tort of negligence distinguishes between these, using duty of care as a device to control whether and when claimants will be able to recover their pure economic losses. The discussions cover the meaning of ‘pure’ economic loss; exceptions to the exclusionary rule; claims for pure economic loss in negligence before Murphy v Brentwood District Council [1990]; and extended applications of the principles established in Hedley Byrne v Heller [1963].

The contract-delict interface and harm-causing omissions

Dale Hutchison co-authored two excellent articles on the contract– delict interface. Their focus was primarily on breaches of contract causing pure economic loss. This article extends the investigation to omissions which are in breach of contract and which cause physical harm to person or property. At the centre of the investigation is the Supreme Court of Appeal’s (majority) judgment in the case of Chartaprops 16 v Silberman 2009 (1) SA 265 (SCA). A harm-causing omission will be wrongful, for the purpose of delictual liability, only if it was in breach of a specific duty. To date, our law has recognised only a small number of such specific duties. The Chartaprops judgment seems to recognise another, arising – in a way which is not clearly explained in the judgment – from the contractual duties by which the harm-causer and certain third parties are bound. In a series of steps, this article develops an account of that duty, culminating in the following formulation, which is meant to capture both the duty’s ground and its content: ‘If a person has contracted with another person to perform a task and knows (or ought to know) that the other person has contracted with him to perform that task in order to discharge a delictual duty owed by the other person to one or more further persons, then he owes those further persons a specific duty, the breach of which constitutes a wrong for the purposes of Aquilian liability, not to cause harm to them by negligently having contracted with the other person to perform that task and then failing to perform it.’

Recovery of Pure Economic Loss in China: Current Situation, Problems and Future Prospects

Should pure economic loss be compensated in China? If so, to what extent? Both questions are left unsolved in the established literature. We contribute to the existing literature by showing that the Chinese courts have developed a relatively conservative attitude towards the compensation of pure economic loss and that the arguments adopted by the courts to deny recovery are neither fair nor reasonable. Using the law and economics analysis, we have recourse to four complementary solutions. First, pure economic loss cases involving socially relevant losses should be compensated. Second, when social losses are not involved, pure economic loss should also be compensated if the third parties are willing to pay or have paid for protection against such a loss. Third, to relieve the excessive pressure imposed by the compensation for such loss, the concepts of causation and the duty of the victim to mitigate damage need to be further clarified in Chinese laws. Fourth, when determining the amount of compensation for pure economic loss, we should carefully balance the trade-off among a variety of factors, including the extent to which the damage could have been foreseen, the nature of the loss, the blameworthiness of the tortfeasor, the size of the plaintiff class, the public policy toward professional standards, the victim’s private loss, the social loss, the courts’ capacities to calculate the loss, and the third parties’ willingness to pay for protection against the loss.

Privity

This chapter discusses privity rules. Privity rules in contract law prevented obligations created by a contract from protruding on third parties, while privity rules in tort law prevented obligations to third parties that might otherwise be imposed by tort law from “indenting” upon a contract. Contract no longer is an impregnable circle of obligation. But contract law still has a privity requirement that prevents a contract from protruding negatively on nonparties. Meanwhile, in tort law, the function of preventing negligence law from indenting upon a contract has devolved to rules that preclude a negligence claim for pure economic loss. Moreover, there are rules in property law and the law of restitution that perform the same functions as the old privity rules in contract law and negligence. These include bona fide purchaser rules in property law and rules in the law of restitution that preclude claims for indirect enrichment and that preserve the priority of contract as a mechanism for resolving problems of unjust enrichment.

5. Negligence: duty of care problem areas

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams, and exercises help readers to engage fully with each subject and check their understanding as they progress. The tort of negligence originated as a remedy for property damage and physical injury. However, recovery of compensation for psychiatric injury and pure economic loss, in cases where they were not caused by physical injury or property damage, has proved difficult. Duty of care for psychiatric injury is contingent upon whether the claimant is a primary or secondary victim. This chapter discusses the policy reasons for limiting duty of care for psychiatric injury, the mechanisms by which the law limits duty of care for psychiatric injury, the meaning of ‘pure economic loss’, and the development of the Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) principle of liability for negligent statements. The chapter also examines the ‘thin skull’ rule, which applies to psychiatric injury in the same way as to physical injury.

12. Non-Physical Damage and Liability for Economic Loss

This chapter continues on from the previous chapter in discussing liability in negligence for physical damage and considers the potential liability that businesses and individuals may face when they provide advice in the nature of their business, when they cause economic losses not associated with physical damage, and where the claimant suffers a psychiatric injury or nervous shock due to the acts of the tortfeasor. Recently, there has been an increase in instances of imposing liability on employers for the stress and associated health problems suffered by their employees. In the absence of physical damage, restrictions are placed on the imposition of liability for pure economic loss, although such loss has been widened to include damages for negligent misstatements. Of crucial importance is that businesses are aware of the implications of providing information in the course of their professional activities that may cause an investor or client loss through negligence.