537
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  537
CHAPTER 13
The Negligent Infliction
of Purely Economic Loss1
13.1 If the defendant, by careless words, acts or omissions, has caused no more
than economic loss to the plaintiff, the circumstances in which the former will be
liable to the latter in negligence are more closely circumscribed than if the plaintiff
suffers damage to the person or to property. While liability for purely financial harm
brought about by another’s lack of care is founded, at bottom, on the Atkinian
principle of foreseeability, it is limited by a variety of factors not normally considered
in determining liability for personal or property damage — factors such as reliance
by the plaintiff on the defendant, or the need for a special relationship between the
parties. It is because of this different, and more limited, approach to liability that the
topic has been dealt with separately in this chapter.
The first matters to be considered, in 13.2–13.17, are the preliminary issues of
what constitutes purely economic loss for these purposes, and the reasons for the
judicial reluctance to allow too broad a scope of liability when that is the loss for
which recompense is claimed. Although, as is pointed out in 13.18, there is little
or no reason in principle to distinguish between purely financial harm caused by a
negligent misstatement and the same harm caused by a negligent act or omission,
the courts’ approach to liability does differentiate between the two means of
bringing about the loss. Hence, 13.19–13.43 deal with liability for negligent
misstatements, while 13.44–13.79 are concerned with those circumstances in
which purely economic loss is compensable, if caused by an act or omission of the
defendant other than by words.
Introduction
What constitutes ‘purely economic loss’?
13.2 This chapter is, in the main, limited to a consideration of those situations in
which the only loss suffered by the plaintiff is financial, and in which the extent of
that loss is not confined by extraneous factors. This limitation excludes from the
present discussion a number of instances in which a plaintiff suffers economic loss.
1. See the broad-ranging and scholarly discussion of this area by Stapleton, ‘Duty of Care and Economic
Loss: A Wider Agenda’ (1991) 107 LQR 249; Stapleton, ‘In Restraint of Tort’ in Birks (ed), The Frontiers
of Liability, 1994, Vol 2, p 83; Stapleton, ‘Duty of Care: Peripheral Parties and Alternative Opportunities
for Deterrence’ (1995) 111 LQR 301.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
538
13.3
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  538
Exclusions from the concept
13.3 A person who has suffered physical injury as the result of another’s negligence
is likely to undergo the financial harm of being unable to exercise his or her earning
capacity, and of having to meet medical and hospital costs. However, the extent of
that harm is, of necessity, constrained by the fact that it is a result of the injury to the
plaintiff as an individual. As a consequence, recovery for that harm is not subject to
the limitations already adverted to. Damages (including financial loss) for personal
injury are assessed in accordance with the principles discussed in Chapter 11.
13.4 Further, this chapter is not concerned with those secondary actions which
may be brought by one person as a result of the death or physical injury caused
to another. Principal among such actions is that available to the dependants of
one who dies as a result of the defendant’s negligence, under the local equivalents
of Lord Campbell’s Act: see 11.32ff. The other action in this category is that
available for the loss of the services of the person injured.2 Although, in both
cases, the plaintiff suffers no detriment other than financial harm, that loss is
necessarily limited to such as flows from the death or injury of an individual. That
fact is considered to be sufficient to keep liability within reasonable bounds, and
so such claims are routinely assessed by courts in accordance with established
principles.
It must also be recalled that this part of the book is confined to the tort of negligence,
and hence that this chapter deals with the negligent infliction of economic loss. The
circumstances in which the intentional causing of financial harm is actionable are
considered in Part VI.
13.5 Generally speaking, this chapter does not deal with cases where the plaintiff ’s
property has been damaged by a force external to that property and the plaintiff
seeks to recover the cost of repairing or replacing it.3 In most such cases, it has
been said,4 it is self-evident that the person responsible for the damage owes a
duty of care to the owner of the property. In any case, the extent of the defendant’s
possible liability is necessarily limited to the value of the damaged goods. In logic,
this chapter should also exclude those circumstances where loss is suffered by
reason of the plaintiff ’s inability to use goods that have been damaged by the
defendant’s lack of care. Such harm is not solely financial, but is consequent upon
the damage to the property concerned; it may therefore be regarded as closely
analogous to the financial harm incurred by one who suffers personal injury. This
type of injury is nevertheless discussed in 13.55ff because the type of loss of which
the plaintiff complains is similar to that for which compensation is granted in cases
of purely economic loss, and because the circumstances in which damages are (or
are not) available raise questions concerning the future development of this area
of the law.
2. The actio per quod servitium amisit is considered in 20.9.
3. It is not, however, always self-evident that a particular loss is an aspect of property damage or is purely
economic: see, eg, Bacardi-Martini Beverages Ltd v Thomas Hardy Packaging Ltd [2002] 1 Lloyd’s Rep 62
at [22]–[29] per Tomlinson J (Eng HC).
4. Mobil Oil Hong Kong Ltd v Hong Kong United Dockyards Ltd [1991] 1 Lloyd’s Rep 309 at 328–9 (PC); cf
Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211 (HL) (plaintiff ’s loss conceded to be to
property only, but duty of care by defendant denied).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
539
The Negligent Infliction of Purely Economic Loss 13.7
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  539
Examples of purely economic loss
13.6 Despite the exclusions mentioned above, there is a wide range of circumstances
which fall within the notion of purely economic loss. The provision of information
or advice — whether it be as to the zoning of land within a city or shire,5 or as
to the financial health of a business6 — is likely to cause no more than financial
harm to one who relies on it, if the information is incorrect, or the advice unsound,
by reason of the provider’s lack of care. A research institute which carelessly allows
a virus to escape and infect livestock in the vicinity will cause purely economic loss
to an auctioneer who is denied the opportunity to sell the livestock at auction.7
Workers who, while excavating a trench, carelessly sever an electricity cable, thereby
bringing to a halt production at a nearby factory, will cause the factory to lose
the profits it would have made during the disruption.8 A dredge which is operated
with insufficient care and which ruptures a pipeline on the seabed will cause, to
the company which uses that pipeline, the financial harm of having to employ a
more expensive means of transporting its products.9 If a Minister of the Crown, by
negligently withholding a necessary consent, prevents a company from proceeding
with a development project, the company may suffer the loss of the opportunity
thereby denied.10 If a builder fails to comply with the plans and specifications for
a house, so that it contains latent defects, the person who is the owner at the time
those defects become manifest will have suffered the economic loss of discovering
that the structure is worth less than was paid for it.11
13.7 In many of the above illustrations, the loss which has been suffered is the
extra cost to which one party has been put by reason of the other’s careless words
or acts. However, in some the loss comprises the gains which the injured party
had expected to make had the defaulting party not acted in the way it did. A
further example of purely economic loss that comprises gains which the injured
party is unable to realise is to be found in those cases in which the defendant’s
negligent misstatement has caused the plaintiff to enter into an unprofitable
contract when, had the misstatement not been made, the plaintiff would have
entered into another, and lucrative, contract.12 A solicitor or other professional
person who is negligent in the drawing,13 execution14 or custody15 of a will may be
liable to those whom the testator intended to benefit, or to the executor named
in the will, for the financial advantages they would have received had the solicitor
acted with due care.
5. L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 150 CLR 225.
6. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL).
7. Weller & Co v Foot and Mouth Disease Research Institute [1966] 1 QB 569.
8. New Zealand Forest Products Ltd v Attorney-General [1986] 1 NZLR 14.
9. Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529.
10. Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA); on appeal sub nom Rowling v Takaro Properties
Ltd [1988] AC 473 (PC).
11. Invercargill City Council v Hamlin [1994] 3 NZLR 513 (CA) (aff ’d [1996] AC 624 (PC)); Bryan v Maloney
(1995) 182 CLR 609.
12. On the assessment of damages on this basis, see Marks v GIO Holdings Australia Ltd (1998) 196 CLR 494.
13. Gartside v Sheffield, Young & Ellis [1983] NZLR 37 (CA); White v Jones [1995] 2 AC 207 (HL).
14. Hill v Van Erp (1997) 188 CLR 159.
15. Hawkins v Clayton (1988) 164 CLR 539. However, see also Badenach v Calvert (2016) 257 CLR 440;
[2016] HCA 18.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
540
13.8
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  540
Reasons for judicial reluctance to impose liability
13.8 The courts have consistently stressed the need for some control mechanism,
narrower than the concept of reasonable foreseeability, to limit a person’s liability
for purely economic loss. Some of the reasons that have prompted this desire are
discussed below, although it may be observed that none of them, taken individually,
is sufficient to support that conclusion.
The fear of indeterminate liability
13.9 In Ultramares Corp v Touche, Niven & Co,16 decided in 1931, Cardozo CJ,
speaking for the New York Court of Appeals, encapsulated one of the difficulties of
treating purely economic loss in the same way as physical injury, for the purpose of
determining liability, when he said that if such were the case ‘a thoughtless slip or
blunder … may expose [defendants] to a liability in an indeterminate amount for an
indeterminate time to an indeterminate class’.
It is not difficult to illustrate the dangers to which the Chief Justice alluded.
Suppose, for instance, that A recommends to B the purchase of shares in a public
company, but that A, through carelessness, has overlooked some fact which renders
the company a bad investment. A, as a reasonable person, could readily foresee
that his or her advice may be passed on by B to others, who may in turn transmit it
further afield. If reasonable foresight of harm were the only criterion of liability, A
would be liable to all those who had acted on the advice to their financial detriment.
Again, suppose that the captain or pilot of a ship carelessly collides with a bridge
linking two parts of a city, causing the bridge to collapse. That collapse would
inevitably lead to the residents of the city suffering the economic harm of being
forced to take a longer, and therefore more expensive, route than had been available
to them. Such dislocation of traffic could then have a deleterious financial effect on
business in the vicinity, which could in turn lead to economic losses by creditors of
those businesses, and so on. Yet, if Lord Atkin’s reference in Donoghue v Stevenson
to the reasonable foreseeability of harm were to form the basis for liability, all those
losses would fall on the owner of the ship.
13.10 The danger which is said to lie in a defendant’s being liable to an ‘indeterminate
class’ is that he or she will not be able to estimate in advance the extent of potential
liability, and arrange his or her affairs accordingly. Hence, the words of Cardozo CJ
have, in some instances, been referred to as a reason for denying the existence of a
duty of care,17 and in others they have been acknowledged as a ground for limiting
the duty more closely than by reference to reasonable foreseeability.18 The dangers
adverted to by that judge, though, should not be over-emphasised. It has also been
16. 174 NE 441 (1931) at 444.
17. Candler v Crane, Christmas & Co [1951] 2 KB 164 at 203–4 per Cohen LJ (CA) (but cf Hedley Byrne &
Co Ltd v Heller & Partners Ltd [1964] AC 465 at 487–8 per Lord Reid (HL)); Scott Group Ltd v McFarlane
[1978] 1 NZLR 553 at 563 per Richmond P (CA).
18. Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 at 568 per Stephen J, at 591
per Mason J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 354 per Gibbs CJ, Mason,
Wilson and Dawson JJ; at 367 per Brennan J; Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA
36 at [32] per Gaudron J, at [106]–[113] per McHugh J; Gartside v Sheffield, Young & Ellis [1983] NZLR
37 at 51–2 per Richardson J (CA).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
541
The Negligent Infliction of Purely Economic Loss 13.13
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  541
remarked19 that his words are capable of being used to disguise the quite different,
and specious, argument that to admit of a duty in a novel situation would be to open
the floodgates to unmeritorious claims.
Disproportion between the defendant’s blameworthiness and the
extent of liability
13.11 Closely linked with the preceding reason for limiting liability for economic
loss is the view that, if such liability is to depend on no more than reasonable
foreseeability of that type of loss, the defendant may be exposed to claims the
extent of which is out of all proportion to the degree to which the relevant conduct
fell below that of the reasonable person.20 This view is but an extension into the
field of purely economic loss of a sentiment that has traditionally been present in
determining liability for personal injury and property damage.21
Interrelationship between liability in tort and contract
13.12 The law of contract has traditionally been concerned, almost exclusively,
with the adjustment of losses that are solely financial. When liability in negligence
for purely economic loss was first accepted in principle, by the House of Lords in
Hedley Byrne & Co Ltd v Heller & Partners Ltd,22 it was recognised that principles of
the law of contract might have an impact on the development of this new form of
duty in tort. In assessing the effect of that interrelationship, it is useful to distinguish
cases in which the parties to the litigation are also parties to a contract from those in
which the plaintiff or defendant is a party to a contract with another.
13.13 In the former circumstance, where the issue is whether a duty of care had
arisen between parties to a contract, the law of negligence now plays a dominant
role and that of contract a subsidiary one, in that a duty of care is assumed, in the
absence of countervailing provisions in the express or implied terms of the contract.23
Thus, it is universally accepted that a professional person owes a duty to his or her
client concurrently and co-extensively in tort or contract,24 the contract generally
not being one the terms of which are the result of lengthy negotiation. However, a
duty of care is likely to be denied if the parties have clearly considered, discussed
and negotiated the terms of their bargain, whether it be for the construction of
19. Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 at 422 per Cooke J (CA); Scott Group Ltd
v McFarlane [1978] 1 NZLR 553 at 571–2 per Woodhouse J (CA); see also Perre v Apand Pty Ltd (1999)
198 CLR 180; [1999] HCA 180 at [336]–[340] per Hayne J.
20. The Caltex case (1976) 136 CLR 529 at 591 per Mason J; the San Sebastian case (1986) 162 CLR 340 at
354 per Gibbs CJ, Mason, Wilson and Dawson JJ.
21. Cf Bolton v Stone [1951] AC 850 (HL); Overseas Tankship (UK) Ltd v Miller Steamship Co Pty Ltd (The
Wagon Mound (No 2)) [1967] 1 AC 617 (PC).
22. [1964] AC 465.
23. For a discussion of this point, see Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) and the
comment thereon by Lord Lloyd in Marc Rich & Co AG v Bishop Rock Marine Co Ltd [1996] AC 211 at
223: ‘the law of tort is the general law, out of which the parties may, if they can, contract’.
24. See, eg, Hawkins v Clayton (1988) 164 CLR 539; Johnson v Perez (1988) 166 CLR 351 at 363 per Wilson,
Toohey and Gaudron JJ: ‘The trend of modern authority is to apply the common law of negligence to
professional relationships’; Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384; Frost &
Sutcliffe v Tuiara [2004] 1 NZLR 782 (CA); and see Martel Building Ltd v Canada (2000) 193 DLR (4th)
1 at [106] (SCC).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
542
13.13
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  542
a commercial building,25 or a large and expensive item of equipment,26 or the
sale of a house27 or goods intended for commercial use,28 the supply of specialist
pharmaceutical products29 or the supply of gas to both commercial and domestic
users in Victoria.30
13.14 In the latter of the situations referred to above, where either the plaintiff or
defendant is a party to a contract with someone else, the effect that the existence
of that contract may have on the determination of a duty of care is related closely
to the doctrine of privity of contract. If it appears that the parties’ reasonable
expectations would be frustrated by the doctrine of privity, the courts are more
willing to overcome that essentially technical hurdle by finding a duty of care.31
However, where, on the other hand, it is considered that the parties were fully alive
to the doctrine of privity, and structured their relationship in its shadow, it would
clearly subvert their intention to superimpose a duty of care thereon, and thus a
duty will generally32 be denied.33
The need to prevent competition being stifled
13.15 In a capitalist society, it is clearly necessary for the law not to impede
competition between business entities. So well entrenched is this principle that the
law is prepared to countenance conduct which is intended to cause economic harm
to a trade rival, so long only as the perpetrator does not commit some act which
is otherwise unlawful in the course of bringing about that economic harm. The
circumstances in which such intentional interference with another’s trade will be
tortious are discussed at 21.24ff. In the light of this approach to the intentional
infliction of purely economic harm, it is not surprising that the courts are at pains
to limit the circumstances in which such economic loss is caused by the merely
negligent conduct of a party. Thus, in Bryan v Maloney,34 members of the High Court
observed that one policy consideration which militated against the recognition of a
duty of care was:
25. Nielsen (FW) (Canberra) Pty Ltd v PDC Constructions (ACT) Pty Ltd (1987) 71 ACTR 1 at 5 per Kelly J;
Greater Nottingham Co-operative Society Ltd v Cementation Piling & Foundations Ltd [1989] QB 71 (CA).
26. Miller (RW) & Co Pty Ltd v Krupp (Australia) Pty Ltd (1992) 11 BCL 74 at 149–52 per Giles J (NSWSC).
27. Willis v Castelein [1993] 3 NZLR 103.
28. Simms Jones Ltd v Protochem Trading NZ Ltd [1993] 3 NZLR 369.
29. McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230; [2008] FCAFC 2 (FC) at [66]
per Emmett J.
30. Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) Aust Torts Reports ¶81-692; [2003] VSC 27 at [1145],
[1146]; see 13.53.
31. Gartside v Sheffield, Young & Ellis [1993] NZLR 37 (CA); White v Jones [1995] 2 AC 207 (HL); Hill v Van
Erp (1997) 188 CLR 159; see 13.77; see also Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR
394 (CA); Bryan v Maloney (1995) 182 CLR 609; see 13.68.
32. One exception was Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 (HL), but that case has lost all
authority: see 13.76.
33. South Pacific Manufacturing Co Ltd v NZ Security Consultants & Investigations Ltd [1992] 2 NZLR 282
(CA); Turton (RM) & Co Ltd v Kerslake and Partners [2000] 3 NZLR 406 (CA); Rolls-Royce New Zealand
Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (CA); Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd
[1986] AC 785 (HL); Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758 (CA);
Nielsen (FW) (Canberra) Pty Ltd v PDC Constructions (ACT) Pty Ltd (1987) 71 ACTR 1 at 8 per Kelly J;
Design Services Ltd v Canada (2008) 293 DLR (4th) 437 (SCC).
34. (1995) 182 CLR 609 at 618 per Mason CJ, Deane and Gaudron JJ; see also Brennan J at 632; Sutherland
Shire Council v Heyman (1985) 157 CLR 424 at 503; Hill v Van Erp (1997) 188 CLR 159 at 190; per
Toohey J; at 211 per McHugh J; Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36 at [345] per
Hayne J; Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 at [21]
per Gleeson CJ, Gummow, Hayne and Heydon JJ.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
543
The Negligent Infliction of Purely Economic Loss 13.17
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  543
… the perception that, in a competitive world where one person’s economic gain
is commonly another’s loss, a duty to take reasonable care to avoid causing mere
economic loss to another, as distinct from physical injury to another’s person
or property, may be inconsistent with community standards in relation to what is
ordinarily legitimate in the pursuit of personal advantage.
The need for certainty
13.16 A further reason that has been advanced for limiting liability for purely
economic loss is the need that the law be certain.35 Only by this means, it is said,
can  legal practitioners advise their clients of their rights (or lack of them). While
some certainty in the law is clearly essential, it may also be observed (a) that to
limit recovery for economic loss by an arbitrary criterion, such as the need to show
injury to one’s property as well, scarcely accords with justice, and (b) that even the
proponents of a fixed rule have acknowledged exceptions thereto, thus restricting
the utility of the notion of certainty.36
The effect of insurance
13.17 Lord Denning MR, in the English Court of Appeal,37 suggested that the
financial harm suffered when a business is forced to close temporarily because of a
disruption to essential services such as electricity, gas or water ought not to be borne
by the person who has caused the disruption. One reason for this view was that the
business is likely to have insured against this loss, so that the effects of the harm are
spread by that insurance among a wide section of the community. La Forest J, in the
Supreme Court of Canada, pointed out38 that one reason for denying liability in at
least some cases of purely economic loss is that first party (indemnity) insurance is
often a cheaper and more effective means of protecting against that harm than third
party (liability) insurance. On the other hand, Woodhouse J, in the New Zealand
Court of Appeal,39 considered that the financial harm caused by a negligent auditor
is best borne by that auditor, as he or she is better able to insure against such liability
than those who had relied, to their financial detriment, on the auditor’s report.
However, it has also been remarked40 that the courts lack the necessary evidence and
expertise to undertake an inquiry into the effects of either loss insurance or liability
insurance, and that both should therefore be left out of account in formulating
relevant principles.
35. Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd [1986] AC 1 at 25 per Lord Fraser (PC);
Canadian National Railway Co v Norsk Pacific Steamship Co Ltd (1992) 91 DLR (4th) 289 at 354–5 per
La Forest J (SCC).
36. See, eg, the Norsk Pacific case (1992) 91 DLR (4th) at 378 per McLachlin J.
37. Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 at 38 ; see also Lamb v Camden
London Borough Council [1981] QB 625 at 637–8 per Lord Denning MR (CA); Johnson Tiles Pty Ltd v Esso
Australia Pty Ltd (2003) Aust Torts Reports ¶81-692; [2003] VSC 27 at [1101].
38. Canadian National Railway Co v Norsk Pacific Steamship Co Ltd (1992) 91 DLR (4th) 289 at 350; see also
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2003) Aust Torts Reports ¶81-692; [2003] VSC 27 at [1105].
39. Scott Group Ltd v McFarlane [1978] 1 NZLR 553 at 572.
40. Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 at 580–1 per Stephen J;
Morgan Crucible Co plc v Hill Samuel & Co Ltd [1991] Ch 295 at 303 per Hoffmann J; see also Marc Rich
& Co AG v Bishop Rock Marine Co Ltd [1996] AC 211 at 229 per Lord Lloyd (HL).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
544
13.18
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  544
Is there a difference between words and acts?
13.18 It may be accepted that it is not always easy to distinguish between a
negligent misstatement which causes purely economic loss and a negligent act
which has the same effect. For instance, in Caltex Oil (Australia) Pty Ltd v The Dredge
‘Willemstad’,41 the appellants suffered the financial harm of being forced to use a
more expensive means of transporting oil products from one point to another when
the pipeline which they used (but did not own) was ruptured by the respondent’s
dredge. Gibbs J observed42 that such loss might be ascribed either to the actions
of the master of the dredge, or to the misstatement by the company which had
prepared the charts on which the master relied. Again, if an accountant negligently
audits a company’s accounts, it is not immediately obvious whether he or she has
made a misrepresentation as to the company’s affairs, or committed a negligent
act. If the complaint against a defendant is a failure to prevent the plaintiff from
suffering purely economic loss, it may be difficult to categorise the defendant’s
possible liability as depending either on a failure to speak or on a failure to act.43
While the distinction may be difficult to draw, it is suggested that it is one which
is important. As will be explained shortly, liability for a negligent misstatement
depends to a large degree on the fact that the plaintiff has placed reasonable reliance
on that statement, and that the defendant is, or ought reasonably to be, aware of
that reliance. Such reliance, however, is not necessarily a touchstone for liability
when the defendant’s negligence consists of acts rather than words.44 Furthermore,
by founding responsibility for negligent misstatements on the concept of reasonable
reliance, a defendant is able to disclaim that responsibility by making it clear that
a statement is not such as would engender that reliance; but one cannot disclaim
responsibility in the same way for one’s negligent acts.45
Hence, the remainder of this chapter deals separately with liability for negligent
misstatements and liability for negligent acts or omissions.
Negligent Misstatements
13.19 Until 1963, liability for loss caused by a misstatement was limited to those
circumstances in which the defendant had been guilty of fraud, had been in breach of
a fiduciary duty, or had given a contractual promise of the accuracy of the statement.
In 1963, the House of Lords extended the ambit of liability to include misstatements
made in breach of a duty of care, in Hedley Byrne & Co Ltd v Heller & Partners
Ltd.46 Because that decision marked a turning point in negligence liability, it is not
surprising that initial judicial reaction to it was guarded.47 However, more recently
41. (1976) 136 CLR 529.
42. Ibid at 552.
43. Cf Yuen Kun Yeu v Attorney-General (Hong Kong) [1988] AC 175 (PC).
44. Although, as is discussed in 13.67, reliance plays a substantial role if the plaintiff ’s complaint relates to the
defendant’s negligence in constructing a defective building.
45. It may also be observed that in England, liability for purely economic loss is generally confined to that
arising from negligent misstatements: cf Murphy v Brentwood District Council [1991] 1 AC 398 at 480–1 at
929–30 per Lord Bridge (HL).
46. [1964] AC 465.
47. See especially the judgment of the majority of the Privy Council in Mutual Life & Citizens Assurance Co Ltd
v Evatt [1971] AC 793.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
545
The Negligent Infliction of Purely Economic Loss 13.21
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  545
the courts have taken a more expansive view of the nature of the liability, and have
consistently whittled away the limitations expressed in earlier decisions.
In determining the current state of the law, this section considers in turn: (1)
the circumstances in which a person may come under a duty of care in making
statements; (2) the range of persons to whom a duty may be owed; (3) the nature
of those statements which, if incorrect, will attract liability; and (4) the measure of
damages that may be recovered.
13.20 Although liability at common law for negligent misstatements is continuing
to develop, it has largely been overtaken by the Australian Consumer Law ss 18 and
236, which imposes strict liability for statements (and other conduct) which mislead
or deceive another.48 The statutory regime is discussed in Chapter 22. Despite the
overlap of liability at common law and under statute, the former requires separate
discussion, first because the legislation (unlike the judicial developments) is limited
to conduct carried on ‘in trade or commerce’49 and second because many of the
relevant common law principles are relied on, by analogy, in construing the very
brief statutory statement.
When does a duty of care arise?
13.21 When the House of Lords first acknowledged the existence of liability for
negligent misstatements, in Hedley Byrne, it suggested that such liability should
devolve only on those who were in a ‘special relationship’ with the person who suffered
loss through the inaccuracy of the statement. Essential to this relationship, it was
subsequently said,50 was the fact that ‘the maker of the statement was or should have
been aware that his advice was required for use in a specific type of contemplated
transaction’. This requirement was limited still further by a majority of the Privy
Council in Mutual Life & Citizens Assurance Co Ltd v Evatt.51 Their Lordships insisted
that, unless the speaker had a financial interest in the transaction in respect of which
the statement was made, liability would follow only if the defendant had, or claimed
to have, skill and competence in the subject matter of the statement. However, this
limitation has subsequently been rejected in Australia52 and England.53 In New
Zealand, the rejection of the Privy Council’s limitation is implicit in the adoption of
the view that a Minister of the Crown may come under a duty when considering an
application for government consent to a development project.54
48. One instance of the statutory basis of liability being wider than that in negligence is Travel Compensation
Fund v Tambree (2005) 224 CLR 627; [2005] HCA 69, discussed by Katter, ‘The Liability of Professionals
to Third Parties for Negligent Misstatement Under Consumer Protection Legislation: Outflanking the
Neighbourhood Principle’ (2007) 15 Tort L Rev 31.
49. And, if the action is against the Crown, liability under the statutory provision is imposed only in so far
as the Crown is ‘carrying on a business’. These limitations on the statutory liability are considered further
in 22.4.
50. Scott Group Ltd v McFarlane [1978] 1 NZLR 553 at 566 per Richmond P.
51. [1971] AC 793.
52. L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225, as explained
in San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 356 per Gibbs CJ, Mason, Wilson and
Dawson JJ, at 371 per Brennan J.
53. Esso Petroleum Co Ltd v Mardon [1975] QB 819 (CA).
54. Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA); cf the doubts as to the existence of a duty
expressed by the Privy Council on appeal, sub nom Rowling v Takaro Properties Ltd [1988] AC 473
at  501–3; but see also Meates v Attorney-General [1983] NZLR 308 at 333–4 per Woodhouse  P and
Ongley J, at 378–9 per Cooke J (CA).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
546
13.22
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  546
13.22 The present position is that liability is not limited to a particular class of
persons, or a particular type of transaction. Rather, a defendant will be found to be
under a duty to take care to prevent economic loss by a misstatement when he or
she knows, or ought to realise, that the words are such as to engender in another
reasonable reliance thereon,55 and when the defendant accepts the consequent
responsibility for taking care in making the statement.56 Hence it has been said in
numerous cases that liability will be imposed, in general, only when the statement
is made on a serious occasion, in relation to a serious matter; a casual comment in
the course of social intercourse is, of its nature, unlikely to give rise to the necessary
reliance on the accuracy of the statement,57 and the same may be said for most of
the claims made in the course of advertising a product.58 However, this does not
mean that an oral statement will never attract liability; of more importance than the
mode of transmission of the information is its significance to the recipient.59 Since
the issue of whether the defendant has assumed responsibility is to be determined
objectively,60 all aspects of the dealings between the parties are relevant.
13.23 The realisation by the defendant that reliance is reasonably being placed on
the statement may arise in a number of different ways. Most commonly, it will be
found in the fact that the defendant has responded to a request for information or
advice.61 In such a case, when the request is made, the defendant has the option
of staying silent, or of qualifying any answer given. Thus, in Tepko Pty Ltd v Water
Board,62 the statement made by the defendant board was clearly no more than an
initial estimate, or ‘ball park figure’, upon which the plaintiff could not reasonably
have relied.63 However, if the defendant gives an unqualified response to a request for
information, that is regarded as bringing home to him or her the fact that reliance is
reasonably to be placed on the words.64 It is not necessary that the request be made
by or on behalf of the plaintiff. It has been accepted by the House of Lords65 that the
provision of a character reference about the plaintiff, at the request of a prospective
55. Allied Finance & Investment Ltd v Haddow & Co [1983] NZLR 22 at 24 per Cooke J, at 30 per Richardson J,
at 35 per McMullan J; San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 355.
56. Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 180–1 per Lord Goff (HL); see also Bryan
v Maloney (1995) 182 CLR 609 at 624.
57. See, eg, MLC v Evatt (1968) 122 CLR 556 at 571 per Barwick CJ (HCA); [1971] AC 793 at 806 per Lord
Diplock (PC); Mohr v Cleaver [1986] WAR 67 (FC). In Chaundry v Prabhakar [1988] 3 All ER 718 (CA),
the parties were close friends, but since the advice given by the defendant related to a serious matter (the
purchase of a motor car), the plaintiff ’s reliance thereon was reasonable in the circumstances.
58. Lambert v Lewis [1982] AC 225 at 264 per Stephenson LJ (CA).
59. Woollahra Municipal Council v Sved (1996) 40 NSWLR 101 at 110–11 per Priestley JA, at 126–7 per
Clarke JA, at 145–6 per Cole JA (CA); cf Shaddock v Parramatta (1981) 150 CLR 225 in which it was held
that a response by telephone from an unidentified employee of the respondent did not render it liable.
60. Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL).
61. Such was the case in, eg, Hedley Byrne v Heller [1964] AC 465; MLC v Evatt (1968) 122 CLR 556
and Shaddock v Parramatta (1981) 150 CLR 225 in all of which the response was made gratuitously.
62. (2001) 206 CLR 1; [2001] HCA 19.
63. Ibid at [49] per Gleeson CJ, Gummow and Hayne JJ.
64. Hedley Byrne & Co v Heller [1964] AC 465 at 486 per Lord Reid (HL); see also Rawlinson & Brown Pty
Ltd v Witham (1995) Aust Torts Reports 81-341 (NSWCA) (real estate agent’s statements about property
made without qualification; held liable for inaccuracies); cf Tepko Pty Ltd v Water Board (2001) 206 CLR
1; [2001] HCA 19 at [86] per Gaudron J.
65. Spring v Guardian Assurance plc [1995] 2 AC 296. However, see James-Bowen v Commissioner of Police of the
Metropolis [2018] 1 WLR 4021 at 4036 per Lord Lloyd-Jones; [2018] UKSC 40 (police commissioner did
not owe duty of care to police officers to defend proceedings so as not to affect economic and reputational
interests of police officers).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
547
The Negligent Infliction of Purely Economic Loss 13.24
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  547
employer, will found liability if made negligently.66 However, a defendant may also
come under a duty despite the absence of such a request. Thus, one who has, or
professes to have, special skill and competence in the subject matter of the statement67
or who is the sole repository of information relating to a particular subject matter68
may be liable for a misstatement either volunteered or given in the course of business
or professional duties.69 Again, a person who has a financial interest in the transaction
in relation to which the statement is made may come under a duty with regard to
information volunteered, since that financial interest may suffice to make it clear that
reliance is being placed on the words.70 Furthermore, the High Court has suggested,
in San Sebastian Pty Ltd v The Minister,71 that a duty of care may be imposed on one
who proffers a statement, if the statement is made with the intention of inducing an
individual or a limited class of people, in reasonable reliance on those words, to act
in a particular way which may cause the recipient economic loss if the statement
is inaccurate or unsound. By contrast, the United Kingdom Supreme Court held,
in NRAM Ltd v Steel, that a borrower’s solicitor does not owe a duty of care to a
commercial lender to state accurately the terms of the security to be provided. Such
terms were readily available to the lender, so it was not reasonable for its employees
to rely upon the accuracy of those stated by the borrower’s solicitor.72
To whom may the duty be owed?
13.24 It has been mentioned in 13.8 that, in all cases in which the claim is for purely
economic loss, the class of persons who may claim is narrower than that determined
by the defendant’s ability reasonably to foresee the possibility of such harm. Instead,
the ambit of the defendant’s liability is determined by a variety of factors, including
the defendant’s knowledge, or means of knowledge, of an ascertainable class of
vulnerable persons who are unable to protect themselves against harm, the degree
of control which the defendant has over the dissemination of the information, and
any limits which the imposition of a duty of care might place on the defendant’s
capacity to engage in a lawful pursuit.73
66. However, if such a statement is defamatory, it is the law of defamation which will determine liability, not
the principles of negligence: Sullivan v Moody (2001) 207 CLR 562; [2001] HCA 59; Bell-Booth Group
Ltd v A-G [1989] 3 NZLR 148 (CA); see further 17.3.
67. With the rejection of the majority opinion of the Privy Council in MLC v Evatt, such persons are not
limited to members of a profession: Tilly v Toowoomba City Council (1989) 69 LGRA 399 (Qld FC).
68. Shaddock v Parramatta (1981) 150 CLR 225; Buksh v Minister for Immigration (1991) 102 ALR 647
(Fed  Ct); Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290 (FC);
Customs (Comptroller of) v Martin Square Motors Ltd [1993] 3 NZLR 289 (CA).
69. See, eg, Scott Group Ltd v McFarlane [1978] 1 NZLR 553 (CA).
70. This basis for liability has its origins in the Restatement, Torts (Second), sec 552; it was interpreted
restrictively  in MLC v Evatt [1971] AC 793 at 805 per Lord Diplock (PC) (information on fellow
subsidiary of defendant not sufficient) and in Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471 (CA)
(commission to be received by real estate agent on sale of property not sufficient) (and see Plummer-Allison
v Ayrey [1976] 2 NZLR 254), but more generously in O’Leary v Lamb (1973) 7 SASR 159 at 190–1 per
Bray CJ. The relevant interest must be financial (San Sebastian Pty Ltd v The Minister (1986) 162 CLR
340 at 358) and would include, eg, that of a contracting party (Esso Petroleum Co Ltd v Mardon [1975] QB
819 (CA)).
71. (1986) 162 CLR 340 at 357–8 per Gibbs CJ, Mason, Wilson and Dawson JJ; cf the more cautious
approach of Brennan J at 372. The court found against liability on the basis that the nature of the alleged
representation was such as not to induce reasonable reliance: see 13.33.
72. NRAM Ltd v Steel [2018] 1 WLR 1190 at 1202–3 per Lord Wilson JSC; [2018] UKSC 13.
73. For a full discussion of the circumstances in which a defendant might come under a duty of care in
situations involving losses other than purely economic, see Chapter 7.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
548
13.25
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  548
13.25 There is no doubt that liability will be established when the defendant makes
a statement directly to the plaintiff, or to an agent of the plaintiff.74 The necessary
indicia of a duty of care will also be found when the defendant acts in response to a
request for information or advice, and knows (or must reasonably contemplate) that
the request is made on behalf of an unnamed individual or a limited class of persons,
for a particular purpose. Thus, in Hedley Byrne & Co v Heller,75 it was sufficient that the
defendant bank had been asked by the plaintiff’s bankers for a credit report on one of
their customers, the defendant being aware that the report was required in relation to
an advertising contract.76 In Kendall Wilson Securities Ltd v Barraclough,77 the relevant
relationship was established by the fact that the defendant’s valuation of property was
known by him to be required for the purpose of lending money on the security of the
property.78 By contrast, the United Kingdom Supreme Court has held that a bank did
not owe a duty of care to a casino operator where the casino operator sought a credit
reference for a gambler with a view to providing that gambler with a cheque cashing
facility. Rather than seeking the credit reference directly, the casino operator got one
of its related companies to seek it from the bank. The status of the casino operator
as the principal seeking the credit reference was never disclosed to the bank. In such
circumstances, the bank could not have foreseen that the casino operator would have
relied on its credit reference and did not voluntarily assume responsibility for its credit
reference to the casino operator, so that no duty of care arose.79
13.26 The courts in Australia and New Zealand have been prepared to extend
the range of persons to whom a defendant may owe a duty of care to include
those whom it can readily be contemplated will rely on a certificate issued by the
defendant. Within this category is the purchaser of a chattel who has relied on the
defendant’s appraisal (for whatever purpose) of the soundness of the goods,80 and
the purchaser of land who has relied on a certificate issued by the defendant to the
vendor of that land, relating either to the suitability of the property for building,81
or the construction of buildings on it.82
13.27 Whether a duty of care extends further than that is a matter of considerable
doubt. There has been a series of cases in New Zealand, England, Canada and
Australia dealing with the circumstances in which a duty of care should be imposed
on an auditor or accountant who reports on the financial health of a company.
74. L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225; Dimond
Manufacturing Co Ltd v Hamilton [1969] NZLR 609 (CA).
75. [1964] AC 465 (HL).
76. See especially at 482 per Lord Reid.
77. [1986] 1 NZLR 576 (CA).
78. See also Haig v Bamford (1976) 72 DLR (3d) 68 (SCC); Smith v Eric S Bush [1990] 1 AC 831 (HL);
Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488 (Fed Ct, FC); Merrett v Babb
[2001] QB 1174; [2000] EWCA Civ 214 (Eng CA).
79. Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] 1 WLR 4041 at 4049–50 per Lord
Sumption JSC; [2018] UKSC 43.
80. Gordon v Moen [1971] NZLR 526 (marine surveyor liable to purchaser of boat who had relied on
certification made for loan purposes); Rutherford v Attorney-General [1976] 1 NZLR 403 (minister liable
to purchaser of motor vehicle on statutorily required certificate of mechanical safety of vehicle); but cf
A-G v Carter [2003] 3 NZLR 160 (CA) (legislative environment indicated that certificate was issued for
safety purposes, not to protect economic interests).
81. Mid Density Developments Pty Ltd v Rockdale Municipal Council (1993) 44 FCR 290 (FC).
82. Pisano v Fairfield Municipal Council (1991) 73 LGRA 184 (NSWCA); Woollahra Municipal Council v Sved
(1996) 40 NSWLR 101 (CA).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
549
The Negligent Infliction of Purely Economic Loss 13.28
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  549
While there is no doubt that a duty is owed to the company, it is less clear whether
it extends to others who have relied on the report to their financial detriment.83
In New Zealand, the leading case is Scott Group Ltd v McFarlane,84 in which the
defendant auditor was regarded as fixed with knowledge, as a result of the audit,
that the company whose accounts he was reporting on was likely to be taken over,
as a result of which a duty of care was owed to the plaintiff, which purchased all
the shares of the company in reliance on the audit. Subsequently, in Boyd Knight v
Purdue,85 the New Zealand Court of Appeal confirmed that, so long as the auditors
must have realised, from the relevant legislation relating to their audit, that the
report would come to the attention of investors in the company audited, a duty of
care will be owed to those investors.86
13.28 In England, on the other hand, the duty is much more circumscribed by
reason of the emphasis placed on the purpose for which the defendant prepared
the relevant report. In Caparo Industries plc v Dickman,87 the House of Lords
concluded that a duty arises generally only when the plaintiff is (or should
be) in the contemplation of the defendant as an individual or a member of an
ascertained class who is likely to rely on the defendant’s information or advice for
the same purpose as that for which it had been prepared by the defendant. Hence,
in Caparo, the defendant auditor having prepared his report for the purpose of
complying with the relevant statutory regime and providing information to the
shareholders as a body did not owe a duty of care to the plaintiff, which had
owned some shares, and purchased the remainder on the faith of the report.88
Similarly, the Supreme Court of Canada has held, in Hercules Management Ltd
v Ernst & Young,89 that a duty of care depends upon the plaintiff showing that he
or she has placed reasonable reliance on the defendant’s statement, and that the
defendant knows, or ought to know, of the identity of the plaintiff (or a class of
persons to which the plaintiff belongs), and, further, that the plaintiff has used the
statement for the precise purpose for which it was prepared. It was on that latter
point that the plaintiffs in that case failed. The defendant auditors had prepared a
report in compliance with a statutory obligation placed on all companies to have
their accounts audited annually; the plaintiffs having relied on that report for the
different purpose of investing in the company, no duty was held to be owed to
them. The Supreme Court of Canada has recently reaffirmed in Deloitte & Touche
v Livent Inc that an auditor should be liable for pure economic loss flowing from
83. For a discussion of the issues see, eg, Nicholson, ‘Third Party Reliance on Negligent Advice’ (1991)
40 ICLQ 551; Hogg, ‘Tortious Liability of Auditors to Third Parties: A Reassessment’ (1994) 18 UQLJ 79;
Barker, ‘Divining an Approach to the Duty of Care: The New Zealand Court of Appeal and Claims for
Negligent Misstatement’ (2001) 10 Otago L Rev 91.
84. [1978] 1 NZLR 553 (CA); referred to with approval in South Pacific Manufacturing Co Ltd v NZ Security
Consultants & Investigations Ltd [1992] 2 NZLR 282 at 296 per Cooke P (CA).
85. [1999] 2 NZLR 278.
86. The respondents were found not to have sufficiently proved that they had specifically relied on the report,
and so were held unable to recover. See also Price Waterhouse v Kwan [2000] 3 NZLR 39 (CA) (auditors of
a firm of solicitors held to owe a duty of care to clients of the firm); Allison v KPMG Peat Marwick [2000]
1 NZLR 560 at [88] per Thomas J (CA).
87. [1990] 2 AC 605.
88. See also Al Saudi Banque v Clarke Pixley [1990] Ch 313; Galoo Ltd v Bright Grahame Murray [1995] 1 All
ER 16 (CA), in neither of which was a duty of care established, but cf Law Society v KPMG Peat Marwick
[2000] 4 All ER 540 (CA) (since one purpose of the defendant’s report to a firm of solicitors was to alert
the Law Society to any matters requiring attention by the Society, a duty of care was established).
89. (1997) 146 DLR (4th) 577.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
550
13.28
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  550
the negligent discharge of a statutory obligation to audit. However, it did not
find that the auditor owed a duty of care to its client in relation to its negligent
provision of services concerning the solicitation of investments.90
13.29 The High Court of Australia, in Esanda Finance Corporation Ltd v Peat
Marwick Hungerfords (Reg),91 has suggested that a duty of care requires, as a necessary
prerequisite, that the defendant knew, or ought to have known, that the relevant
statement would be communicated to the plaintiff (or to a class of persons of whom
the plaintiff is one). As well as such knowledge, it would be sufficient if the plaintiff
established that the defendant intended to induce recipients to act, or to refrain
from acting, on the statement.92 However, even in the absence of such an intention,
the existence of a duty of care may be founded on showing that a likely outcome of
the making of the statement was the plaintiff ’s entering into a transaction of the kind
which he or she did enter into in reliance on that statement.93
13.30 While these cases demonstrate that reliance by the plaintiff on the defendant’s
words is a necessary aspect in determining whether there is a sufficient relationship
of proximity, that reliance may, in some strictly limited cases, be indirect rather than
direct. Such a case was BT Australia Ltd v Raine & Horne Pty Ltd.94 The investment
manager of a unit trust was the recipient of information supplied by the defendant.
The investment manager, to the knowledge of the defendant, was legally bound
to the plaintiff to act on the information in a way that would cause financial loss
to the plaintiff if it were incorrect. When this eventuality occurred, the plaintiff
was held to be entitled to recover that loss from the defendant. However, it is not
sufficient if the recipient of the information acts merely in a way that the defendant
might reasonably foresee, with the consequence that economic harm is suffered by
another.95 That other cannot be regarded as even indirectly relying on the defendant,
so that the relationship between them is not sufficient to establish a duty of care.
Conduct which constitutes a misstatement
13.31 The essence of liability for negligent misstatements being found in the notion
of reasonable reliance, the conduct on the part of a defendant which may constitute
a misrepresentation for these purposes is that which, either by what is said or is left
unspoken, might reasonably be relied on by the plaintiff to lead the latter into error.
A speaker may, however, so qualify a statement as to make it clear that the words
ought not to be relied on; in such a case, no liability can attach.
Statements
13.32 Despite some earlier suggestions that liability for a statement depends upon
the prior classification of the words used as being of fact and not of opinion,96 it
is now clear that such a distinction is irrelevant. As the High Court observed in
90. [2017] 2 SCR 855 at 866 per Gascon and Brown JJ; 2017 SCC 63.
91. (1997) 188 CLR 241.
92. 188 CLR at 275 per McHugh J; see also at 262 per Toohey and Gaudron JJ.
93. Ibid at 252 per Brennan CJ; see also at 260 per Toohey and Gaudron JJ.
94. [1983] 3 NSWLR 221.
95. Mansard Developments Pty Ltd v Town of Armadale (1985) 3 BCL 400 at 422–3 per Franklyn J (WASC);
cf Ministry of Housing & Local Government v Sharp [1970] 2 QB 223 (CA).
96. Evatt v MLC (1969) 69 SR (NSW) 50 at 70 per Asprey JA (FC); MLC v Evatt (1968) 122 CLR 556
at 591 per Taylor J.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
551
The Negligent Infliction of Purely Economic Loss 13.34
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  551
San Sebastian Pty Ltd v The Minister,97 the statement sued on in MLC v Evatt was
one of information and advice, while that for which the defendant in Shaddock
v Parramatta was liable was of information alone, but any such difference was not in
issue since ‘the distinction between information and advice is an unnecessary and
often difficult one to draw’.98 It is equally irrelevant to the imposition of liability
that the defendant’s statement relates to future events — either as to the speaker’s
intentions or events over which he or she has no direct control.99
13.33 All that is necessary to found liability is that the statement be of such a
character as to engender in the plaintiff reasonable reliance thereon. Hence, in
Meates v Attorney-General,100 assurances as to the future conduct of the government,
having been made with sufficient clarity and precision as to lead the plaintiff to
believe that all reasonable care would be taken to see that they would be carried out,
were held to constitute a misstatement for these purposes.101 On the other hand, in
San Sebastian Pty Ltd v The Minister,102 an outline planning proposal was found not
to fix the defendant with liability, the principal reason being that, in the nature of
things, ‘proposals of this kind are subject to alteration, variation and revocation’103
and hence was not such that the plaintiff might reasonably have expected that it
would be carried out in its entirety.
Failure to speak104
13.34 A person may be liable not only for what is said but also for a failure to
provide information or advice when the defendant ought to have realised that the
plaintiff was relying on him or her to provide more than was actually imparted.105
The situations in which liability will be imposed depend to a large extent on the
particular circumstances in which the parties are placed. If the defendant makes
a statement which is accurate and reliable at that time, there is a duty to inform
the plaintiff of any change of circumstances of which the defendant is, or ought
to be, aware which renders the statement inaccurate or unsound.106 Parties who
are negotiating a partnership agreement owe one another a duty to disclose all
97. (1986) 162 CLR 340 at 356.
98. See also MLC v Evatt (1968) 122 CLR 556 at 572 per Barwick CJ; L Shaddock & Associates Pty Ltd
v Parramatta City Council (1981) 150 CLR 225 at 242–3 per Stephen J; Norris v Sibberas [1990] VR 161
at 173 per Marks J (App Div).
99. See, eg, Commonwealth Bank v Smith (1991) 42 FCR 390 (Fed Ct, FC).
100. [1983] NZLR 308 (CA).
101. See also Rennie v Commonwealth (1995) 61 FCR 351 (FC) (government department liable for incorrect
advice relating to the pension scheme which it administered); Marac Finance Ltd v Colmore-Williams [1988]
1 NZLR 625 (assurance by accountants that defendants’ liability under a guarantee would be limited held
to be representation for these purposes); Tipperary Developments Pty Ltd v Western Australia (2009) 38 WAR
488; [2009] WASCA 126 (CA) (government liable for statement about financial soundness of merchant
bank to whom plaintiff had been asked to lend money).
102. (1986) 162 CLR 340.
103. Ibid at 359. See also Norris v Sibberas [1990] VR 161 at 175 per Marks J (App Div) (estate agent’s
predictions about a business were so qualified as to have ‘little significant meaning’); Ta Ho Ma Pty Ltd
Allen (1999) 47 NSWLR 1 (CA) (plaintiff held to have acted unreasonably in relying on a valuation some
nine months after it had been made).
104. Finn, ‘Good Faith and Non-disclosure’ in Finn (ed), Essays on Torts, 1989, pp 170–8.
105. See generally MLC v Evatt (1968) 122 CLR 556 at 571 per Barwick CJ.
106. Abrams (J & JC) Ltd v Ancliffe [1978] 2 NZLR 420; Commonwealth Banking Corp v Speck (1988) 144 LSJS
17 (FC); Meadow Gem Pty Ltd v ANZ Executors & Trustee Co Ltd (1994) ATPR (Digest) 46–130 at 53,636
per Hedigan J (Vic SC); Ellis (Richard) (WA) Pty Ltd v Mallins Investments Pty Ltd (1995) Aust Torts
Reports 81-319 at 62,086 per Malcolm CJ (WAFC).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
552
13.34
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  552
material facts of which they are aware and of which the other party might not be
aware,107 just as a landlord may come under a duty to inform an intending tenant of
any latent defects relating to the premises of which the landlord is, or ought to be,
aware.108 It may also be relevant to consider, for example, the nature of the request
(if any) for information or advice,109 the business setting of the transaction and the
standards normally to be expected of the profession or calling to which the defendant
belongs,110 and the degree to which the defendant knew, or ought to have known, of
the plaintiff ’s experience (or lack of it) with regard to the transaction in question.111
If the defendant is under a duty imposed by statute to provide information, it is
unlikely that there will be a common law duty of greater extent.112
13.35 While liability for failing to speak generally depends upon the extent of the
plaintiff ’s reliance on the defendant, and the latter’s awareness thereof, it must
be accepted that in some limited circumstances a defendant will come under an
obligation to speak, in the absence of such reliance, by reason solely of an assumption
of responsibility towards the plaintiff. Such a circumstance was found to exist, by a
majority of the High Court, in Hawkins v Clayton.113 The defendant solicitors had
drawn a client’s will and accepted responsibility for its custody after her death. This
was regarded as sufficient to treat the solicitors as having assumed the responsibility,
on becoming aware of the testatrix’s death, of locating the executor and informing
him of the contents of the will. Since they had failed to fulfil this responsibility for a
substantial period, they were held liable for the financial loss resulting to the estate
as a foreseeable consequence of that failure.
However, such an assumption of responsibility to speak will be imputed in only
the most exceptional circumstances. Just as the law is loath to impose duties of
affirmative action to prevent personal injury or property damage (see 7.17ff), so too
is it unwilling to impose such a duty to prevent financial harm. Hence, when a bank
inadvertently allowed a customer to withdraw funds from its account in breach of an
asset freezing order obtained by the Customs and Excise Commissioners, but did not
inform the commissioners of what had occurred, the House of Lords held that the
bank had not voluntarily assumed any responsibility to the commissioners, nor had
they relied in any way on the bank. It was therefore held that the bank did not owe
a duty of care to the commissioners.114 Similarly, the mere fact that two companies
are in a close business relationship, or even that they are negotiating for a contract of
107. Conlon v Simms [2007] 3 All ER 802; [2006] EWCA Civ 1749.
108. Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd (2005) 215 ALR 625; [2005] NSWSC 20.
109. L Shaddock & Associates Pty Ltd v Parramatta City Council (1981) 156 CLR 225; Brown  v  Heathcote
County Council [1987] 1 NZLR 720 (PC); Finlay v Rowlands [1987] Tas R 60; Lennon v Metropolitan Police
Commissioner [2004] 2 All ER 266; [2004] EWCA Civ 130.
110. Lloyd v Citicorp Australia Ltd (1986) 11 NSWLR 286 at 288 per Rogers J; Norwest Refrigeration Services Pty
Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 at 168 per Brennan J; Hanflex Pty Ltd v NS Hope &
Associates [1990] 2 Qd R 218 at 226–7 (FC); Brownie Wills v Shrimpton [1998] 2 NZLR 320 (CA).
111. Sacca v Adam (1983) 33 SASR 429 (FC); Lloyd v Citicorp Australia Ltd (1986) 11 NSWLR 286 at 288 per
Rogers J; Foti v Banque Nationale de Paris (1989) 54 SASR 354; Commonwealth Bank v Mehta (1991) 23
NSWLR 84 (CA); Craig v Troy (1997) 16 WAR 96 (FC); Doolan v Renkon Pty Ltd (2011) 21 Tas R 156;
[2011] TASFC 4 at [42]–[44].
112. Yuen Kun Yeu v Attorney-General (Hong Kong) [1988] AC 175 (PC); Deloitte Haskins & Sells v National
Mutual Life Nominees Ltd [1993] AC 774 (PC); see also Cooper Henderson Finance Ltd v Colonial Mutual
General Insurance Co Ltd [1990] 1 NZLR 1 (CA) (tort duty of disclosure not to extend beyond that
imposed by contract).
113. (1988) 164 CLR 539.
114. Customs & Excise Commissioners v Barclays Bank plc [2007] 1 AC 181; [2006] UKHL 28.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
553
The Negligent Infliction of Purely Economic Loss 13.37
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  553
insurance and therefore owe one another a duty of the utmost good faith, has been
held not to be sufficient to impose on one the duty to inform the management of the
other company that it has been defrauded by one of its brokers.115
Disclaimer of liability116
13.36 Since reasonable reliance plays such an important part in determining
liability for misstatements, it follows as a matter of course that a defendant may
make it clear, by the use of appropriate words, that a statement is not such as might
reasonably be relied on by the plaintiff, and hence disclaim the liability which
would otherwise accrue. Whether the words used have this effect is very much a
matter of construction, in the light of all the surrounding circumstances, the onus
being on the defendant to show that the phraseology employed is appropriate for
its purpose.117
In the Hedley Byrne case itself,118 the decision of the House of Lords was in favour
of the defendants. Their report stated that it was given ‘without responsibility on
the part of the bank or its officials’ and, since the only responsibility they might
have been under was in negligence, these words were regarded as apt to disclaim
that liability.119 On the other hand, in BT Australia Ltd v Raine & Horne Pty Ltd,120
a property valuation made by the defendants included a clause that it was ‘for
the use of the party to whom it is addressed and for no other purpose, and no
responsibility is accepted to any third party’. This clause, it was held, would have
protected the defendants against a claim by anyone unconnected with the plaintiffs
into whose hands the report might have come, but was not sufficient to exclude
liability towards the plaintiffs. Even though it had not been addressed directly to
all the plaintiffs, the clause did not deny responsibility for damage suffered as a
consequence of the actions of the addressee. Similarly, in Derring Lane Pty Ltd
v Fitzgibbon,121 a similarly worded clause in a valuation certificate was held not to
negate a duty of care towards one who suffered loss by the addressee’s reliance on
the certificate.
Extent of liability
13.37 Since liability for negligent misstatements is but one aspect of the tort of
negligence, the plaintiff must prove the necessary causal link between the defendant’s
statement and the loss for which compensation is sought, that such loss is not too
remote a consequence, and the measure of that loss.
115. Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd [1990] 1 QB 665 (CA) (aff ’d on different
grounds); Banque Financiere de la Cite SA v Skandia (UK) Insurance Co Ltd; Westgate Insurance Co Ltd
[1991] 2 AC 249 (HL)); the breach by the insurer of its obligation of the utmost good faith would
have entitled the insured to rescind the contract of insurance, but that remedy was inappropriate in the
circumstances. See also Bentley v Wright [1997] 2 VR 175 (CA) (bailee of ostrich under no obligation to
inform intending purchaser of any matters relating to the bird).
116. Jackson, ‘Tortious Disclaimers and Negligent Misstatement: Reasonableness and Unconscionability’
(1991) 65 ALJ 507.
117. Burke v Forbes Shire Council (1987) 63 LGRA 1 at 20 per Allen J (NSWSC), in which an ambiguity in a
disclaimer was construed against the party seeking to rely on it.
118. [1964] AC 465.
119. See, eg, at 492–3 per Lord Reid.
120. [1983] 3 NSWLR 221; see also Mackman v Stengold Pty Ltd (1991) ATPR 41-105 (Fed Ct).
121. (2007) 16 VR 563; [2007] VSCA 79.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
554
13.38
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  554
Causation and remoteness
13.38 As with negligence alleged to give rise to personal injury and property
damage (see 9.2), causation is essentially a question of fact.122 The defendant will
escape liability if it is shown that the plaintiff would have acted in the same way had
the defendant not made the statement, either because the plaintiff had determined
on that course of action prior to the statement having been made, or because the
plaintiff was fully aware of the true state of affairs.123 The plaintiff, in other words,
must show not only (as a question of law) that the statement was such as might have
been relied on but also (as an issue of fact) that the statement was indeed relied on
to provide not merely the occasion for the loss to be suffered but its cause.124
13.39 The courts have faced considerable difficulty when the plaintiff’s loss, while
clearly brought about in part by the defendant’s negligence, has been exacerbated by
factors external to the transaction entered into by the plaintiff. Both the High Court
and the House of Lords have considered actions in which a valuer has negligently
over-valued property for the purpose of the provision of a mortgage by the plaintiff on
the security thereof but, before that fact of the over-valuation comes to light, there has
been a severe decline in property values generally. In Kenny & Good Pty Ltd v MGICA
(1992) Ltd,125 the High Court held that, since the valuation had been a decisive factor
in leading the plaintiff to act as it did, the valuer should be liable for the whole of the
loss suffered by the plaintiff, including that attributable to the fall in market values. In
this respect, the High Court declined to follow the decision of the House of Lords in
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd,126 in which it had been held
that a valuer in such circumstances should be liable only for the difference between
the valuation given and the true value of the property at the time of the valuation.127
13.40 Questions of remoteness are resolved in the same way as in an action for
personal injury or property damage: see 9.7. The plaintiff must show that the
particular items of financial loss for which recompense is claimed were of a kind
or class that was a reasonably foreseeable consequence of the defendant’s negligent
misstatement;128 the extent of the loss need not be reasonably foreseeable.129
122. For a discussion of causation in the context of a claim for purely economic loss, see Takaro Properties Ltd
v Rowling [1986] 1 NZLR 22, especially at 61–2 per Woodhouse P (CA), rev’d on other grounds, sub
nom Rowling v Takaro Properties Ltd [1988] AC 473 (PC); Barnes v Hay (1988) 12 NSWLR 337 (CA);
Thorpe Nominees Pty Ltd v Henderson [1988] 2 Qd R 216 (FC); Banque Keyser Ullmann SA v Skandia (UK)
Insurance Co Ltd [1991] 2 AC 249 (HL).
123. See, eg, Kullack v Australia & New Zealand Banking Group Ltd (1988) ATPR 40–861; Parramatta City
Council v Lutz (1988) 12 NSWLR 293 at 324–6 per McHugh JA (CA); Deloitte Haskins & Sells v National
Mutual Life Nominees Ltd [1993] AC 774 at 788 (PC).
124. State Bank of NSW Ltd v Yee (1994) 33 NSWLR 618; Galoo Ltd v Bright Grahame Murray [1995] 1 All ER
16 (CA); Fleming v Securities Commission [1995] 2 NZLR 514 (CA); Brown v KMR Services Ltd [1995]
4  All ER 598 (CA); as to the matters which a plaintiff must prove where the defendant’s negligence
consists of an omission, see Allied Maples Group Ltd v Simmons & Simmons [1995] 4 All ER 907 (CA).
125. (1999) 199 CLR 413.
126. [1997] AC 191. See Murdoch, ‘Negligent Valuers, Falling Markets and Risk Allocation’ (2000) 8 Tort L
Rev 183.
127. See also Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA); Bristol and
West Building Society v Mothew [1998] Ch 1 (CA). As to the effect of the plaintiff ’s contributory negligence
on such an outcome, see Platform Home Loans Ltd v Oyston Shipways Ltd [2000] 2 AC 190.
128. South Australia v Johnson (1982) 42 ALR 161 at 170 (HCA); Barnes v Hay (1988) 12 NSWLR 337 (CA);
Kimber (David) TV & Sound Ltd v Kaiapoi Borough Council [1988] 1 NZLR 376 (CA); Rubenstein v HSBC
Bank plc [2012] All ER (D) 75 (Sep) at [113]–[125] per Rix LJ, for the court.
129. State Bank of NSW Ltd v Yee (1994) 33 NSWLR 618 at 628 per Giles J.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
555
The Negligent Infliction of Purely Economic Loss 13.41
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  555
Measure of damages
13.41 The purpose of an award of damages for negligent misstatement, no less
than for negligence causing physical injury,130 is to seek to restore the plaintiff to
the financial position that obtained prior to the commission of the tort. The task
of the court is essentially retrospective, in looking back to the plaintiff ’s economic
state before the action in reliance on the defendant’s misstatement, and comparing
that with the financial position at the time of the action. Hence, if the plaintiff has
undertaken a course of action in reliance on the defendant’s statement, and is able
to show that it would never have embarked on that project had the statement been
correct, the measure of damages is the expenditure thus wasted.131
Since the damages claimed are the result of the plaintiff ’s acting on a statement
made by the defendant, there is a superficial similarity with the recovery of damages
for breach of contract. However, the purpose of the latter award is different in
principle; that award is essentially prospective, in that its aim is to put the plaintiff
in the position that would have existed had the contractual promise been fulfilled.132
Thus, in a case where a plaintiff purchases property on the faith of an incorrect
statement made by the defendant vendor, if that statement has contractual force,
the plaintiff may recover the difference between the price paid and the value of the
property as it was warranted to be, whereas if the statement is regarded as no more
than a negligent misrepresentation, the plaintiff is entitled only to the difference
between the price paid and the true value of the property.133
Although there is a difference in principle between damages for negligent
misstatement and damages for breach of contract, the practical effect of that
difference is not great. While a claim for profits lost as a result of relying on an
incorrect statement may generally be pursued only in a contract action, the High
Court has recognised, in Gates v City Mutual Life Assurance Society Ltd,134 that in
suitable circumstances a plaintiff may recover a similar amount in a tort action.
It was observed135 that, if the plaintiff ’s reliance on the representation ‘has deprived
him of the opportunity of entering into a different contract … on which he would
have made a profit, then he may recover that profit on the footing that it is part of
the loss which he has suffered in consequence of altering his position under the
inducement of the representation’.136 A plaintiff seeking to recover for the loss of a
commercial opportunity is entitled to have the damages assessed by reference to the
chance that the opportunity would otherwise have been successfully exploited.137
130. On which see 11.2.
131. Brown Falconer Group Pty Ltd v South Parklands Hockey & Tennis Centre Inc (2005) 91 SASR 152; [2005]
SASC 75 (FC).
132. Scott Group Ltd v McFarlane [1978] 1 NZLR 553 at 585 per Cooke J (CA); Gates v City Mutual Life
Assurance Society Ltd (1986) 160 CLR 1 at 12 per Mason, Wilson and Dawson JJ.
133. Ellul v Oakes (1972) 3 SASR 377 (FC) (misstatement by vendor of house); Walker Hobson & Hill Ltd
v Johnson [1981] 2 NZLR 532 (misstatement by assignor of licence). See also HTW Valuers (Central
Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; [2004] HCA 54.
134. (1986) 160 CLR 1.
135. Ibid at 13 per Mason, Wilson and Dawson JJ.
136. Cf Kyogle Shire Council v Francis (1988) 13 NSWLR 396 (CA), in which a majority of the court rejected
the plaintiff ’s claim for opportunities of profit forgone, principally on the basis of his failure to prove that
loss with sufficient particularity.
137. Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA) (rev’d on other grounds [1988] AC 473 (PC));
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; cf Rainbow Industrial Caterers Ltd v Canadian
National Rly Co (1991) 84 DLR (4th) 291 (SCC).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
556
13.42
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  556
Contributory negligence
13.42 Despite an apparent illogicality, it is clear that the contributory negligence
legislation (see 10.15) applies to a claim for negligent misrepresentation, allowing
the damages to be reduced in proportion to the plaintiff ’s want of care. The perceived
illogicality is that, since liability for such a statement depends upon the plaintiff ’s
reasonable reliance thereon, it can scarcely be said that a plaintiff who has failed
to take care of his or her own financial interests was reasonable in relying on the
defendant’s representation.138 However, this difficulty is apparent and not real. It
has been mentioned in 13.38 that the notion of reliance fulfils a role both as an
issue of law — in determining whether the statement was such as to attract liability
if it were inaccurate — and as one of fact — in determining whether the plaintiff
has demonstrated the necessary causal link between the statement and the loss. The
applicability of the contributory negligence legislation relates only to reliance in the
latter role, and not in the former.
Once it is determined that the statement sued on was made in such circumstances
as would have engendered reasonable reliance thereon by a person in the plaintiff ’s
position, the defendant will be liable if the plaintiff can show, among other things,
that the statement was one of the causes of his or her subsequent action. However,
the defendant may reduce the amount of damages otherwise payable by showing
that another motivating cause of the plaintiff ’s loss was some different act or
omission by the plaintiff which, in all the circumstances, demonstrates a failure by
the plaintiff to protect his or her own financial interests. Such a contributing cause
may be constituted by a failure to check the financial affairs of a borrower, the loan
to whom having also been induced by a negligent valuation of one of the borrower’s
assets,139 or by a company failing to institute adequate financial controls of its
employees, the company’s losses having also been caused by its auditors’ failure to
report deficiencies in those controls.140
Statutory limitation of liability
13.43 All of the Australian jurisdictions have enacted legislation that allows for
a limitation on the liability of members of various professions and trades.141 The
statutes permit a professional or trade association to prepare a scheme relating to
that particular profession or trade under which the members’ liability in respect of
their calling may be limited by the extent of either their insurance cover or their
net business assets or by reference to the charges made for the work in relation to
which the liability has arisen. Once such a scheme has been prepared, the Acts also
provide for it to be the subject of consultation prior to approval by the respective
Professional Standards Council of each state. If a scheme is approved by that council,
138. JEB Fasteners Ltd v Marks, Bloom & Co [1981] 3 All ER 289 at 297 per Woolf J; cf Gran Gelato Ltd
v Richcliff (Group) Ltd [1992] Ch 560 at 574 per Nicholls V-C: defendant having intended that plaintiff
rely on the misstatement, it would generally be unjust to treat that reliance as evidence of carelessness.
139. Kendall Wilson Securities Ltd v Barraclough [1986] 1 NZLR 576 (CA); cf Astley v Austrust Ltd (1999)
197 CLR 1, discussed in 10.16.
140. Daniels v Anderson (1995) 37 NSWLR 438 at 567 per Clarke and Sheller JJA (CA) (affirming AWA Ltd
v Daniels (1992) 7 ACSR 759 (NSWSC)); Dairy Containers Ltd v NZI Bank Ltd [1995] 2 NZLR 30 at 76
per Thomas J.
141. Civil Law (Wrongs) Act 2002 (ACT) Sch 4; Professional Standards Act 1994 (NSW); Professional
Standards Act 2004 (NT); Professional Standards Act 2004 (Qld); Professional Standards Act 2004 (SA);
Professional Standards Act 2005 (Tas); Professional Standards Act 2003 (Vic); Professional Standards
Act 1997 (WA).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
557
The Negligent Infliction of Purely Economic Loss 13.45
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  557
it is submitted to the relevant minister for publication in the Government Gazette
whereupon the scheme has the force of law. In conjunction with this legislation,
the Competition and Consumer Act 2010 (Cth) s 137, Australian Securities and
Investments Commission Act 2001 (Cth) s 12GNA and the Corporations Act 2001
(Cth) s 1044B seek to ensure that the liability of a professional for damages for
breach of the Australian Consumer Law s 18, and the equivalent of that section in
the other Commonwealth legislation, may be validly capped by the above state and
territory legislation.
Negligent Acts or Omissions
13.44 While liability for negligent misrepresentation may be considered without
further classification or categorisation, the same cannot be said for those cases where
the plaintiff ’s economic loss arises by reason of the defendant’s act or omission.
The stress, throughout this chapter, is on the judicial means developed to contain
liability within acceptable bounds, but the means of providing that containment
vary depending upon the way in which the plaintiff suffers the relevant loss.
If that loss is suffered by the defendant’s negligence in causing loss or damage to
property belonging to anyone other than the plaintiff, the courts in Australia and
New Zealand have been prepared to allow recovery if the circumstances are such
that the defendant must reasonably have contemplated the likelihood of such loss,
and has no justification for inflicting it. This aspect of liability is discussed in 13.45–
13.54. The courts in the United Kingdom, however, have not been prepared to go
as far as that, and will allow a plaintiff to recover for such financial items as profits
lost or money spent as a result of another’s negligent damage to property only if
the plaintiff had a proprietary or possessory right to that property, as discussed in
13.55–13.62.
Where the plaintiff ’s loss arises because a house or other structure that has been
acquired turns out to have been defectively constructed, the judicial response in
Australia and New Zealand (once again differing from that in England) has been
generally in favour of recovery. The view has been taken, as is explained in 13.63–
13.76, that the necessary limits on liability are a result of the fact that the complaint
relates to no more than a single item of property. Similarly, if compensation is sought
by those who would, but for the defendant’s negligence, have benefited under a
testamentary disposition, there is little difficulty in establishing a duty of care, since
liability is naturally confined by the testator’s intentions. This aspect of the topic is
considered in 13.77ff.
Losses consequent upon damage to another’s property142
13.45 Liability for purely economic loss will be imposed on one who has knowledge,
or the means of knowledge, that the plaintiff, as a member of a determinate class, is
unable to protect himself or herself against the loss that results from the defendant’s
negligent act or omission, provided that the imposition of such liability will not
unduly fetter the defendant’s legitimate commercial interests.
142. See, generally, Barker, ‘Relational Economic Loss and Indeterminacy: The Search for Rational Limits’,
in Degeling, Edelman and Goudkamp (eds), Torts in Commercial Law, 2011, Ch 9.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
558
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  558
13.45
The first case to provide authority for this proposition is the decision of the High
Court in Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’.143 The defendant,
while carrying out dredging operations in Botany Bay, fractured a pipeline which
carried petroleum products from a refinery on one side of the bay to the plaintiff ’s
terminal on the other side. The pipeline was owned by Australian Oil Refining
Pty Ltd. As a result of the damage to the pipeline, Caltex had to use other, and
more expensive, means of transporting the petroleum products. The plaintiff had
not suffered any damage to its property, but the High Court upheld its claim to
recover the purely economic loss of the additional costs of transportation. Although
the judgments themselves display a measure of difference in expression, the High
Court has subsequently144 indicated that no differences of principle between the
members of that court were intended thereby.
13.46 The principle to be derived from the Caltex decision has been followed in two
cases at first instance in New Zealand. In New Zealand Forest Products Ltd v Attorney-
General,145 post office workers, while digging a trench in which to lay telephone cables,
severed an underground power cable which was owned by a local authority, and which,
to the knowledge of the post office workers, supplied only the plaintiff’s manufacturing
business. The disruption of the power supply to the plaintiff’s plant did not cause damage
to any of its property, but led only to a loss of production and consequent loss of profits.
However, that loss was held to be recoverable, since the defendant’s employees were
aware that the power cable supplied the plaintiff alone; the plaintiff was therefore not
only within the defendant’s contemplation, in that case as an individual, but also was
powerless to take any measures to avert those losses. Similarly, in Mainguard Packaging
Ltd v Hilton Haulage Ltd,146 a truck driver who negligently collided with a power pole,
thereby bringing down the pole and the power line it carried, was held to owe a duty of
care to the plaintiff company, the only business served by that power cable, for the loss
caused by the consequent disruption of its operations.147
13.47 The Caltex decision has been subjected to criticism both by the Privy Council,
in Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd,148 and by the Supreme
Court of Canada, in Canadian National Rly Co v Norsk Pacific Steamship Co Ltd.149 In
both cases, the criticism was directed to the comments of the members of the High
Court that liability was imposed, on the facts of that case, almost entirely because
the plaintiff must have been in the contemplation of the defendant as an individual,
and not as a member of an unascertained class. Both the Privy Council150 and the
Supreme Court of Canada151 considered that such a basis of liability gave rise to
143. (1976) 136 CLR 529.
144. San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 at 354.
145. [1986] 1 NZLR 14.
146. [1990] 1 NZLR 360.
147. See also Port v New Zealand Dairy Board [1982] 2 NZLR 282 (plaintiff recovered losses flowing from
defendant’s negligent conduct of artificial insemination which resulted in plaintiff ’s herd bearing cross-
breed, rather than pure-bred, calves).
148. [1986] AC 1. The case is considered further in 13.59.
149. (1992) 91 DLR (4th) 289.
150. [1986] AC at 24.
151. (1992) 91 DLR (4th) at 341–2 per La Forest J, at 377 per McLachlin J. It may be observed that the
majority in that case arrived at their conclusion for two mutually inconsistent reasons, but unanimity of
judicial view was restored in Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd (1997) 153
DLR (4th) 385 (SCC).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
559
The Negligent Infliction of Purely Economic Loss 13.50
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  559
injustice on the grounds of its sheer arbitrariness. However, despite this criticism,
the High Court has more recently affirmed the correctness of the Caltex decision,
and provided a range of further factors to be taken into account in determining the
existence of a duty of care.
13.48 In Perre v Apand Pty Ltd,152 the plaintiffs/appellants, potato growers in
South Australia, suffered considerable financial harm when the defendants sold to
another potato grower in the vicinity seed potatoes which turned out to be infected
with bacterial wilt. The reason for the plaintiffs’ financial loss was that they had
previously sold most of their crop in Western Australia, but legislation in that state
imposed an embargo on the importation from interstate of any potatoes grown on
property within 20 km of any outbreak of bacterial wilt in the previous five years.
The conduct of the defendant in selling the infected potatoes, while not affecting
any property owned by the plaintiffs, caused them to lose their highly profitable
market in Western Australia for at least five years. Although the trial judge and the
Full Court of the Federal Court rejected the plaintiffs’ claim, a unanimous High
Court found in their favour. In separate judgments, the various members of the
High Court propounded a number of indicia which led to that conclusion.
13.49 One such factor was that Apand’s liability was necessarily determinate; the
Western Australian legislation, of which the defendants were well aware, applied
only to potatoes grown within the radius of 20 km of an infected property. Any
financial loss suffered by farmers outside that range could not come within the
scope of the defendants’ duty, nor would they be liable to businesses such as those
in the trucking industry which dealt only incidentally with potatoes.153
A similar example of the application of this factor of any possible liability being
strictly limited in extent is Barclay v Penberthy.154 The defendant pilot took as
passengers on a charter flight a group, all of whom were known by the defendant to
be employees of the company which had chartered the plane. The High Court held
that the defendant owed a duty of care to the company to protect it from the purely
economic loss that it suffered when the plane crashed on take-off, causing injury to
some of those employees.155
13.50 The point that this factor is concerned simply with the defendant’s capacity
to estimate the likely ambit of persons who may be affected by its actions, and not
with the absolute size of the group who may suffer economic loss, is vividly illustrated
by the decision in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd.156 Following an
explosion at the defendant’s gas processing plant at Longford, the whole of Victoria
was left without gas supplies for some two weeks. Proceedings were brought against
Esso by parties representing three groups, each of which had suffered a different
152. (1999) 198 CLR 180.
153. See, eg, Gaudron J at [32], McHugh J at [106]–[113], Gummow J at [213] and [214] and Hayne J
at [336]–[343].
154. (2012) 246 CLR 258; [2012] HCA 40.
155. Ibid at [42]–[49] per French CJ, Gummow, Hayne, Crennan and Bell JJ, at [173]–[175] per Kiefel J;
cf Heydon J at [85]–[88] who dissented on this point, on the ground that the plaintiff had not proved that
it was ‘vulnerable’. On vulnerability as a factor in determining liability, see 13.52ff. No duty was owed
in respect of the two employees who were killed in the accident, on the application of the rule in Baker
v Bolton (1808) 1 Camp 493 170 ER 1033, see 11.33.
156. (2003) Aust Torts Reports ¶81-692; [2003] VSC 27.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
560
13.50
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  560
type of economic harm — those businesses which had been forced to close down
while the supply of gas was interrupted, domestic users of gas who had had to
purchase appliances to replace those using gas, and workers who had been stood
down while their respective employers had been unable to continue in business.
Gillard J held that, although the commercial users of gas numbered some 43,000,
and the domestic users comprised approximately 1.1 million, neither constituted
an indeterminate group for these purposes.157 The defendant had at least the means
of ascertaining who might fall into that category. However, the workers who had
been stood down did constitute an indeterminate class, as Esso could not have
any means of determining either how many employees any particular business had,
nor the ability of any business to find alternative employment for its workforce.158
Similarly, in McMullin v ICI Australia Operations Pty Ltd,159 various businesses
sought to recover the losses suffered when the export trade in beef was seriously
affected by the discovery in that beef of residues of a pesticide manufactured by the
defendant. Wilcox J held that the defendant owed a duty of care to meat processors
and exporters, and to the owners of feedlots who had no more than possession of
contaminated cattle, as they formed a sufficiently determinate group, whereas all
of those who, although not having ownership or possession of contaminated cattle,
had suffered a substantial loss of business, either because of governmental controls
introduced to prevent further contamination, or because of the decline in the export
trade brought about by a fear of contamination, were held to be too indeterminate,
and no duty of care was owed to them.160
13.51 A further factor to which the members of the High Court in Perre v Apand Pty
Ltd paid regard was that a finding of liability on the part of the defendant company
would not derogate from its pursuit of its own commercial advantage.161 The judges
acknowledged that commercial activity by anyone in a competitive environment is
likely to cause economic harm to others in the same field of commerce, and that to
impose liability for negligent conduct may stifle that commercial activity. However,
on the facts of that case, Apand’s conduct in negligently distributing infected seed
acted directly against its own commercial interests. Hence, to impose liability for
that conduct, and thereby possibly to deter it in the future, would promote rather
than hinder competition.
13.52 The other factor which was seen as relevant by the High Court in Perre’s
case as establishing liability was the vulnerability of the plaintiffs to this particular
harm.162 The inability of the plaintiff to take measures to protect himself or herself
from the consequences of the defendant’s actions is recognised as an important
157. Ibid at [936]. Despite the conclusion as to this factor, the judge held that Esso was not liable to these
consumers, because they were not vulnerable: see 13.53.
158. Ibid at [938]–[942]. Earlier examples of plaintiffs found to constitute an indeterminate group for these
purposes are Johns Period Furniture Pty Ltd v Commonwealth Savings Bank of Australia (1980) 24 SASR
224 (FC) and Ball v Consolidated Rutile Ltd [1991] 1 Qd R 524.
159. (1997) 72 FCR 1.
160. See also Fortuna Seafoods Pty Ltd v The Ship ‘Eternal Wind’ [2008] 1 Qd R 429; [2005] QCA 405 (see
13.54; vertically integrated companies in the fishing industry formed a small determinate class of potential
plaintiffs): at [22] per McMurdo P, at [103] per Dutney J.
161. (1999) 198 CLR 180, esp at [33] per Gaudron J, at [114]–[117] per McHugh J, at [345]–[346] per Hayne J.
162. Ibid at [10], [11] per Gleeson CJ, at [118] per McHugh J, at [216] per Gummow J. See also Western
Districts Development Pty Ltd v Baulkham Hills Shire Council (2009) 75 NSWLR 706; [2009] NSWCA 283
(CA) (purchaser of building lot vulnerable to lack of care in the certification of a plan of subdivision).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
561
The Negligent Infliction of Purely Economic Loss 13.53
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  561
factor in determining a duty of care in all cases, and is by no means limited to
circumstances where the plaintiff ’s loss is purely financial: see 7.12. On the facts
of Perre’s case, that factor was clearly satisfied. The Perres not only could not have
done anything to protect themselves against the sale of infected seed potatoes to
their neighbours, they did not even know that such a sale had taken place. However,
in other circumstances it may not be so easy to determine whether this indicium has
been fulfilled. Thus, in Perre, Gleeson CJ163 regarded the vulnerability of the Perres
as being on a par with that of the plaintiff in the Caltex case, whereas McHugh J
considered that such a parallel was not so easy to draw, observing that ‘courts must
keep the contractual background in mind in determining whether a duty of care
should be imposed’.164 On the facts of the Caltex decision, there was nothing to say
that Caltex could not have bargained with the refinery company to be compensated
by it for the costs of any disruption in the use of the pipeline, a cost which the
refinery company could have recovered from the negligent dredge as a consequence
of the damage to its property.165 McHugh J, though, went on to comment in the
Perre case166 that plaintiffs may indeed be vulnerable, and rightly be owed a duty of
care, when they are not able, in any meaningful way, to bargain to protect their own
interests,167 as was the case, in his Honour’s view, with the Perres, and as would also
be the case of a plaintiff who has suffered economic loss through a disruption in the
supply of a utility such as water, electricity or gas.168
13.53 Such a circumstance, of substantial economic loss being suffered by the
interruption of the supply of gas, came before the Supreme Court of Victoria
in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd.169 In that case Gillard J, while
accepting that not even the commercial customers could have protected themselves
against their losses by means of a contract with their supplier,170 nevertheless held
that neither the commercial nor the domestic customers were vulnerable, for the
purposes of determining the existence of a duty of care. So far as the commercial
customers were concerned, his Honour considered that they ought to have been
aware of the possibility of an interruption in supply, and that they might either have
installed additional equipment to cover any interruption in the supply from Esso,171
or have taken out their own (first party) insurance against the business losses flowing
from that interruption.172 Similarly, he considered the domestic customers not to
be vulnerable for these purposes, as they too ought to have realised the possibility
of an interruption in supply, for whatever reason, and either to have equipped
163. 198 CLR 180 at [11].
164. Ibid at [122].
165. See the comments to the like effect by La Forest J in Canadian National Rly Co v Norsk Pacific Steamship
Co Ltd (1992) 91 DLR (4th) 289 at 351–2 and by Macfarlan JA in Rail Corp of NSW v Fluor Australia
Pty Ltd [2009] NSWCA 344 at [130]–[133].
166. (1999) 198 CLR 180 at [123].
167. As is arguably the case as between the guarantor of a company’s debts and the liquidator of that company:
Mills v Sheahan (2007) 99 SASR 357; [2007] VSC 365 (FC) at [26] per Debelle J; Perpetual Nominees Ltd
v McGoldrick (2017) 317 FLR 227 at 250 per Vickery J; [2017] VSC 78.
168. See the comments of McLachlin J in the Norsk case (1992) 91 DLR (4th) at 374, and of La Forest J
at 351.
169. (2003) Aust Torts Reports 81-692; [2003] VSC 27; see 13.50.
170. Ibid at [1045].
171. Ibid at [1070].
172. Ibid at [1101].
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
562
13.53
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  562
themselves with alternative means of heating and cooking, or have adjusted their
lifestyle accordingly.173
13.54 The factor of vulnerability was one of the relevant issues in the decision of
the Queensland Court of Appeal in Fortuna Seafoods Pty Ltd v The Ship ‘Eternal
Wind’.174 Fortuna Seafoods processed and sold fish caught by a related company,
Fortuna Fishing Pty Ltd. The defendant collided with and sank a vessel owned
by Fortuna Fishing, with the result that Fortuna Seafoods was deprived of the
opportunity to process and sell fish that it had previously obtained from that source.
In Fortuna Seafoods’ action against the defendant, a majority of the court held that
it was vulnerable to that loss, because, ‘as a company processing seafood it could
do little to realistically protect itself against Eternal Wind’s negligent actions’.175 It
might, however, be argued that on the setting up of the two companies, Fortuna
Seafoods might have bargained with Fortuna Fishing for the latter company to
compensate Fortuna Seafoods for any loss suffered by a disruption in the supply
of fish. Fortuna Fishing, it would appear, might have recovered the costs of such
an indemnity from the defendant, Eternal Wind, as a non-remote consequence of
the damage to its ship.176
13.55 By contrast, in Marsh v Baxter, the majority of the Court of Appeal of the
Supreme Court of Western Australia (Newnes and Murphy JJA) found that a
broadacre farming operation, in an area where such conventional farming was the
norm, did not owe a duty of care not to inflict pure economic loss on a nearby
organic farmer, where such loss was brought about by the broadacre farming
operator’s introduction of genetically modified crops to the area.177
Losses consequent on damage to the plaintiff ’s property
13.56 If a plaintiff suffers damage to his or her property as a result of another’s
negligence, any claim for compensation is clearly not for purely economic loss, and
might be thought to be outside the scope of this chapter. However, such a claim
typically includes among the items of damage matters such as lost profits, payments
made to third parties and other heads going beyond the mere cost of repair of the
property. The type of compensation sought is therefore closely analogous to that
considered throughout this chapter. Furthermore, both the House of Lords178 and
the Privy Council179 have reaffirmed that, in their view, an adequate control device
for limiting claims for financial detriment is that the plaintiff show that such loss
is the non-remote consequence of damage to property in which the claimant has a
proprietary or possessory interest. The Supreme Court of Canada has also concluded
that the only exception to this general rule is where the property owner and the
party which has suffered the economic loss are engaged in a common venture.180
173. Ibid at [1113].
174. [2008] 1 Qd R 429; [2005] QCA 405.
175. Ibid at [23] per McMurdo P.
176. See the similar comments made about the Caltex decision and the remarks of La Forest J in the Norsk
Pacific case, referred to at fn 162 above.
177. (2015) 49 WAR 1 at 101–13; [2015] WASCA 169.
178. Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd [1986] AC 785 at 816–17 per Lord Brandon; Homburg
Houtimport BV v Agrosin Pte Ltd [2003] 1 Lloyd’s Rep 571 (HL).
179. Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd [1986] AC 1 at 25 at 945.
180. Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd (1997) 153 DLR (4th) 385.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
563
The Negligent Infliction of Purely Economic Loss 13.58
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  563
The approach adopted generally in the United States is also similar to that taken in
England.181 Since this chapter is, in general, concerned with the means which the
courts have developed to limit liability for such harm, this particular control device
is properly considered at this juncture.
While there is little doubt as to the general principle that a plaintiff may recover for all
the financial harm which is a direct consequence of damage to property, that principle
has been limited by the requirement that the plaintiff have a possessory or proprietary
interest in the damaged property. It is also open to criticism as a control device on the
recovery of financial loss generally. Each of these matters will be considered in turn.
The general principle
13.57 A defendant who, by a negligent act or omission, causes damage to the
plaintiff ’s property is liable not only for the cost of repairing or restoring that
property, but also for the further financial harm which is a direct consequence of
the damage to the property. Thus, if a contractor negligently severs an electricity
cable, gas main or water pipe which serves a number of factories, that contractor
will be liable both for the value of the material rendered useless by that disruption
and for the profits which the plaintiff expected, but is no longer able, to make on
selling that material.182 The contractor will not be liable for any other profits lost to
the manufacturer by reason solely of the disruption to production; that is regarded
as no more than an indirect consequence of the contractor’s negligence.183 So too, a
manufacturer whose pumps proved to be defective was held liable to the owner of
a lobster farm, when the defect caused most of the lobsters to die, for the value of
that stock and the profits expected to be made on its sale.184 When a local authority
constructed various works which led to the flooding of a hotel, it was held liable both
for the subsequent loss of business and for the capital loss on a forced sale, both
being regarded as direct and non-remote consequences of the flooding.185 If two
ships collide in coastal waters, though, and the resultant pollution of the sea leads
to a temporary embargo on its use, none of those who are thereby prevented from
exploiting the waters for recreational purposes — such as marina operators, fishing
tackle shops or the proprietors of seafood restaurants — may recover their losses, for
no property belonging to any plaintiff has been damaged.186
13.58 For a plaintiff to recover for financial harm in these circumstances, in
addition to showing that such harm is the direct result of the damage to property,
it must be proved, in accordance with the normal principles of causation discussed
in 9.2, that there has been no break in the causal link between the property damage
and the losses claimed. So, the forced sale by the hotel owner, in the example given
above, was not regarded as severing the causal chain. On the other hand, a payment
181. Louisiana v M/V Testbank 752 F 2d 1019 (5th Cir, 1985), a decision of a special bench of all 15 members
of the US Court of Appeals for the Fifth Circuit; cf People Express Airlines Inc v Consolidated Rail Corp
495 A 2d 107 (NJ 1985).
182. SCM (UK) Ltd v WJ Whittall & Son Ltd [1971] 1 QB 337 (CA), approving British Celanese Ltd v AH Hunt
(Capacitors) Ltd [1969] 2 All ER 1252.
183. Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 (CA); see also Electrochrome Ltd
v Welsh Plastics Ltd [1968] 2 All ER 205.
184. Muirhead v Industrial Tank Specialities Ltd [1986] QB 507 (CA).
185. Taupo Borough Council v Birnie [1978] 2 NZLR 397 (CA).
186. Louisiana v M/V Testbank 752 F 2d 1019 (5th Cir, 1985); cf Re Exxon Valdez 767 F Supp 1509 (D Alaska
1991) in which the court allowed the holders of commercial fishing licences to sue, as they had a sufficient
proprietary interest.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
564
13.58
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  564
made by a tanker owner to compensate landowners for the effects of an oil spillage
brought about by the defendant’s negligence was treated as sufficiently voluntary
and independent to break the causal nexus with that negligence. The payment was
not, therefore, recoverable by the tanker owner from the defendant.187
Plaintiff must have proprietary or possessory right
13.59 The general principle discussed above applies only when the property
damaged by the defendant is that to which the plaintiff has a proprietary or
possessory right at the time that the injury occurred. This limitation stems from
the decision of the Court of Queen’s Bench in Cattle v Stockton Waterworks Co,188 in
which the plaintiff, a contractor, while digging a tunnel through land owned by one
Knight, was impeded in the task by water seeping from the defendant’s water mains.
The delay caused loss to the plaintiff, since his contract with Knight had been for a
lump sum, but he was held not to be entitled to recover that loss from the defendant.
13.60 It is likely that the decision in Cattle’s case was based on the then current views
on remoteness of damage,189 but even in the half century after it was decided, it was
interpreted more broadly as denying relief to anyone whose loss resulted from injury
to another’s property.190 This latter interpretation of Cattle’s case, while rejected by
the High Court of Australia and in New Zealand (see 13.45 and 13.46), has been
reaffirmed by the Privy Council (ironically in an appeal from New South Wales)
and by the House of Lords. In Candlewood Navigation Corp Ltd v Mitsui OSK Lines
Ltd,191 the Privy Council concluded that a time charterer was not able to sue the
owner of a ship which, by negligent navigation, had collided with the chartered
vessel, the time charterer’s loss comprising the amount of hire payable while the
vessel was being repaired. In Leigh & Sillavan Ltd v Aliakmon Shipping Co Ltd,192 the
House of Lords held that a buyer of goods, to whom the risk but not the property
had passed, had no right of action against a shipowner by whose alleged negligence
the goods had been damaged.
13.61 The English Court of Appeal has recently expanded the notion of what
constitutes a proprietary or possessory right to property to include the beneficial owner
of that property as well as the legal owner. In Shell UK Ltd v Total UK Ltd,193 an oil
storage facility near London was severely damaged by an explosion and fire which had
been caused by the admitted carelessness of the defendant. The damage led directly to
the plaintiff suffering considerable financial loss, as it was unable to supply fuel to its
existing customers other than in very reduced quantities. However, the storage facility
was owned by a non-trading service company, and the plaintiff had no more than a
part beneficial interest in that company. Although the trial judge held that the plaintiff
could not recover, as it was not the legal owner of the damaged property, the Court of
187. Esso Petroleum Co Ltd v Hall Russell & Co Ltd [1989] AC 643 (HL).
188. (1875) LR 10 QB 453.
189. See Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 at 585–6 per Mason J.
190. Simpson & Co v Thomson (1877) 3 App Cas 279 at 289–90 per Lord Penzance (HL); Remorquage a Helice
(SA) v Bennetts [1911] 1 KB 243 at 248–9 per Hamilton J; Elliott Steam Tug Co Ltd v Shipping Controller
[1922] 1 KB 127 at 139–40 per Scrutton LJ; Robins Dry Dock & Repair Co v Flint 275 US 303; 72 L Ed
290 (1927).
191. [1986] AC 1.
192. [1986] AC 785.
193. [2011] QB 86; [2010] EWCA Civ 180. Leave to appeal to the United Kingdom Supreme Court was
granted, but the parties settled before the appeal was heard.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
565
The Negligent Infliction of Purely Economic Loss 13.63
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  565
Appeal upheld the plaintiff’s appeal, on the basis that the defendant was liable for the
foreseeable consequences of the damage to property, such as the extra expenditure to
which the beneficial owner was put, and the loss of profits which it suffered.194
Criticism of this principle as a means of limiting liability
13.62 Both the Privy Council in the Candlewood case and the House of Lords in the
Aliakmon case made it clear that their respective decisions were based on the need to
continue to provide a means of controlling liability for economic loss. Such control,
it was said, was best provided for by requiring the plaintiff to show that the loss was
the direct consequence of damage to property in which he or she had a proprietary
or possessory right. However, that justification is difficult to reconcile with the facts
before each court.
In the Candlewood case, the most for which the defendant could have been liable, had
the vessel not been chartered, was the cost of the repairs and the cost to the owner of
the loss of use of the ship. To deny the time charterers the right to recover the part of
that loss which they suffered, on the basis that they had no more than a contractual
right to the use of the ship, was to grant a windfall benefit to the defendants. The Privy
Council, while acknowledging the force of that argument, considered195 that to accede
to it would open up an ‘exceedingly wide new range of liability’. It may also be said,
though, that this fear would have been unfounded, and the defendants would not have
received an unexpected benefit, had the time charterers been able to recover their
losses on the footing that the defendants had the means of knowledge that the time
charterers individually were likely to suffer loss as a result of the collision.196
A similar point may be made about the Aliakmon case, in that the greatest amount
for which the defendant shipowners might have been liable, had they been sued
by the sellers rather than the buyers, was the diminution in the value of the goods
caused by their negligence. The decision can therefore scarcely be justified on the
ground that to allow the buyers a right of action would extend a tortfeasor’s liability
to intolerable limits.197
13.63 These two decisions, on their particular facts, are poor illustrations of the need
to find a means of controlling liability for economic loss. On the more general level,
though, serious doubts have been raised as to the propriety of the rule which confines
the recovery of economic harm to those who suffer that loss as a direct consequence of
damage to their property. Some of these doubts have been summarised by Stephen J in
the Caltex case198 when he said of that rule, first, that it is draconic, in that it ‘operates
to confer upon … physical injury a special status unexplained either by logic or by
common experience’, second, that it is arbitrary, in that it may make the right to recovery
194. The decision has been subjected to trenchant criticism in casenotes by Low (2010) 126 LQR 507, Turner
[2010] CLJ 445 and Rushworth and Scott [2010] LMCLQ 536, but supported by Barker, fn 139, at 193–4.
195. [1986] AC 1 at 19.
196. See the decision at first instance, sub nom Mitsui OSK Lines Ltd v The Ship ‘Mineral Transporter’ [1983] 2
NSWLR 564 at 573 per Yeldham J, applying the Caltex case.
197. The finding may, however, be regarded as an illustration of the difficulties which the doctrine of privity
of contract and its many exceptions and limitations impose on unwary parties: see further Seddon and
Bigwood, Cheshire and Fifoot’s Law of Contract, 11th Aust ed, 2017, 7.42. The effect of the decision has
been abrogated in England by the Carriage of Goods by Sea Act 1992 (UK), which permits the buyer to
sue the shipowner in contract: see Reynolds, ‘Contract and Tort: The View from the Contract Side of the
Fence’ (1993) 5 Canta LR 280 at 295–8.
198. (1976) 136 CLR 529 at 568–9.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
566
13.63
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  566
‘depend upon the precise terms of a contract between the injured person and a third
party’199 and third, that it lacks any clear basis in history or principle.200 Concerns as to
the propriety of the rule are increased when reference is made to the way in which this
principle is applied in the United States. It has already been noted that in that country,
if the defendant’s negligent act leads to pollution of coastal waters, the losses suffered
by those who are prevented from exploiting those waters for recreational purposes
are not recoverable.201 Those who are prevented, by the defendant’s negligence, from
exploiting the sea for commercial purposes, though — that is, commercial fishers and
the like — are able to recover their losses,202 one possible basis for that distinction being
that such persons have a sufficiently proprietary interest in the fish which they would
otherwise have caught to bring them within the terms of the rule.203 A rule which
admits of such an exception commands little respect.
Defective property
13.64 The preceding paragraphs, 13.55–13.62, were concerned with harm that
had been caused to the plaintiff ’s property by the impact thereon of the effect of
the defendant’s negligent act or omission, rendering the property of less worth than
it had been previously. This part is concerned with those instances in which the
plaintiff ’s complaint is that his or her property has turned out always to have been
defective as a result of the defendant’s negligence. Although it is difficult to see the
distinction in terms of principle, the courts have dealt differently with chattels, when
compared to their treatment of buildings. The two types of property are therefore
discussed separately below.
Chattels
13.65 In Australia, if a chattel purchased by the plaintiff is found to have been
defectively manufactured, and thereby causes financial harm, compensation for
that loss or damage may be claimed directly against the manufacturer or importer,
under the Australian Consumer Law Pt 3-2 Div 1. The plaintiff need only show,
for instance, that the goods were not of an acceptable quality; the manufacturer
may be liable, despite having taken all reasonable care. However, if these statutory
provisions are not applicable, it is unlikely that a manufacturer of chattels would
be regarded as owing a duty of care to a consumer or other person in the chain of
distribution with respect to purely financial harm suffered as a result of defective
manufacture.204
13.66 This is not to say that if a chattel turns out to have a latent defect, the person
who owns it at the time when the defect comes to light has no right of recourse,
should the defect be the result of carelessness in the chain of supply. In Rivtow
199. Both the Candlewood and Aliakmon cases illustrate this point.
200. See also the comments of Mason J in the Caltex case (1976) 136 CLR 529 at 591–2.
201. Louisiana v M/V Testbank 752 F 2d 1019 (5th Cir, 1985).
202. Union Oil Co v Oppen 501 F 2d 558 (9th Cir, 1974); Re Exxon Valdez 767 F Supp 1509 (D Alaska 1991);
cf Ball v Consolidated Rutile Ltd [1991] 1 Qd R 524.
203. The Testbank case 752 F 2d 1019 (1985) at 1027, fn 10 per Higginbotham J, writing for the majority of
the court; cf Williams J at 1034.
204. Minchillo v Ford Motor Co of Australia Ltd [1995] 2 VR 594 (App Div); Hamble Fisheries Ltd v L Gardner
& Sons Ltd [1999] 2 Lloyd’s Rep 1 (Eng CA); Bryan v Maloney (1995) 182 CLR 609 at 630; Rivtow
Marine Ltd v Washington Iron Works (1973) 40 DLR (3d) 530 (SCC); cf Lambert v Lewis [1982] AC 225 at
227–8 per Lord Diplock (HL).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
567
The Negligent Infliction of Purely Economic Loss 13.68
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  567
Marine Ltd v Washington Iron Works,205 Laskin J, dissenting from his fellow members
of the Supreme Court of Canada, argued that the owner of a negligently designed
or manufactured chattel should be able to recover the economic loss suffered
by repairing the chattel, and thereby preventing it from causing physical injury
or property damage. In his Lordship’s view, the rationale for holding a negligent
manufacturer liable for physical injury or property damage to those who come
within the ambit of a duty of care ‘should equally support … recovery in the case
where … there is a threat of physical harm and the plaintiff is in the class of those
who are foreseeably threatened’.206
Buildings
13.67 If it is a building that is discovered to have been constructed defectively,
the person who owns the structure at the time the defect comes to light may, in the
light of Australian and New Zealand authorities, in many circumstances recover
the diminution in value caused by the discovery of that defect from at least some of
the parties involved in the original construction. It is the purpose of the following
paragraphs to consider which of those parties may be so liable, and in which
circumstances liability may be denied.
The point must be made at the outset that this aspect of liability applies in Australia
and New Zealand only. In England, neither those involved in the construction of
a defective building, nor the local authority which carried out any inspection or
certification of the structure, owes a duty of care to the subsequent owner.207 In the
United States and Canada, a builder is liable to a subsequent owner only for the
cost of repairing dangerous defects and not for a fall in value when shoddy work is
discovered.208
13.68 Both in Australia209 and New Zealand,210 liability for a defective building
is based on a variety of factors. Among them is the fact of reliance by the plaintiff
on the defendant’s skill and the acceptance by the latter that such reliance will be
reposed in his or her skill, together with the vulnerability of the plaintiff to that
harm. The issue is seen, to some extent, as developing the law along lines parallel
to those set by Hedley Byrne & Co Ltd v Heller & Partners Ltd,211 but with a natural
safeguard against any fear of indeterminate liability. While words may be spread
by repetition to an infinite number of listeners, leading to a need to control, the
extent of liability of the originator of those words, a defect in a building — even
one so serious as to require its demolition — can never cause loss any greater than
the value of that structure at the time that the defect is discovered, and the cause
205. (1973) 40 DLR (3d) 530.
206. Ibid at 549. The Supreme Court of Canada subsequently applied that reasoning to defectively constructed
buildings: see the Winnipeg Condominium Corp No 36 v Bird Construction Co (1995) 121  DLR (4th)
193 (SCC).
207. D & F Estates Ltd v Church Commrs for England [1989] AC 177 (HL); Murphy v Brentwood District Council
[1991] 1 AC 398 (HL); Department of Environment v Thomas Bates & Son Ltd [1991] 1 AC 499; (HL).
However, see Bellefield Computer Services Ltd v E Turner & Sons [2000] BLR 97 (Eng CA) and note
thereon by Wallace (2000) 116 LQR 530.
208. Aas v Superior Court 12 P 3d 1125 (2000); Winnipeg Condominium Corp No 36 v Bird Construction Co
(1995) 121 DLR (4th) 193 (SCC).
209. Bryan v Maloney (1995) 182 CLR 609 at 627 per Mason CJ, Deane and Gaudron JJ.
210. Invercargill City Council v Hamlin [1994] 3 NZLR 513 at 519 per Cooke P (CA) (aff’d [1996] AC 624 (PC)).
211. [1964] AC 465 (HL); see 13.19.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
568
13.68
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  568
of action accrues. To ascertain who may be liable, it is sufficient to consider those
on whom the current owner may have relied, and whether they had assumed that
responsibility.
13.69 Builder, engineer and architect It has been accepted in New Zealand since
Bowen v Paramount Builders (Hamilton) Ltd212 was decided by the Court of Appeal in
1977 that a professional builder owes a duty of care in relation to latent structural
defects213 to whoever should happen to own the house at the time the defects are
discovered. The same result had been arrived at in a series of first instance judgments
in Australia,214 the correctness of which was confirmed by the High Court in Bryan
v Maloney.215 The owner of a house may, in the absence of proof to the contrary,
be assumed to rely on a professional builder to carry out the work with care and
skill,216 and the builder generally accepts the responsibility arising from that reliance.
It has been accepted in New Zealand that the same reliance and assumption of
responsibility may also arise as between a purchaser and owner–builder,217 although
that proposition has been doubted in Australia.218 It was at one stage held that if the
building is used for commercial purposes, there is no assumption that the owner has
relied on the builder’s care and skill, and hence that the latter owes no duty of care
to the former.219 However, the High Court, in Woolcock Street Investments Pty Ltd
v CDG Pty Ltd,220 held that such a distinction was completely arbitrary and had no
basis in principle.
13.70 While denying any distinction should be made between domestic and
commercial property, the High Court in the Woolcock Street case introduced the
factor of vulnerability in determining whether (in that case) an engineer, who had
been responsible for the design of the foundations of the building, owed a duty
of care to the second owner of the building. It was held that the owner was not
vulnerable to the necessary degree because it had not proved that it had been unable
to gain some protection against the possibility of the defect that had occurred. The
court appeared to assume that the purchaser of a commercial property can bargain
for some form of contractual protection, or have an expert investigation made of
the premises prior to purchase. The contractual protection envisaged was either to
take an assignment of such rights as the original owner may have had against the
builder, or to obtain a warranty as to the fitness of the building from the vendor.
While these forms of protection appear to be effective for the second or subsequent
owner of property, it has been pointed out that it is very unlikely that any subsequent
212. [1977] 1 NZLR 394.
213. The principle does not extend to defects relating to such cosmetic matters as painting: Goulding v Kirby
[2002] NSWCA 393.
214. Miell v Hatjopoulos (1987) 4 BCL 226 (SASC); Lowden v Lewis [1989] Tas R 254; Brumby v Peaton (1991)
10 BCL 291 (Tas SC).
215. (1995) 182 CLR 609.
216. Cf Opat v National Mutual Life Assoc of A’asia Ltd [1992] 1 VR 283, in which the plaintiff ’s statement
of claim was struck out, as against the builder, as the plaintiff had failed to allege reliance on the builder.
217. Chase v de Groot [1994] 1 NZLR 613; cf Willis v Castelein [1993] 3 NZLR 103 at 120–2 per Williams J
(owner–builder with no trade or professional qualifications not engendering the necessary reliance).
218. In Zumpano v Montagnese [1997] 2 VR 525 at 539, Brooking JA concluded that ‘Bryan v Maloney is
confined to builders who build under contract’, but the other members of the Court of Appeal decided
the case solely on the basis of the defendant’s lack of vicarious liability, as to which see 26.33.
219. Fangrove Pty Ltd v Tod Group Holdings Pty Ltd [1999] 2 Qd R 236 (CA).
220. (2004) 216 CLR 515; [2004] HCA 16.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
569
The Negligent Infliction of Purely Economic Loss 13.73
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  569
purchaser would in fact follow any of these courses of action,221 and that any one of
them could be provided only at prohibitive cost.222 It would appear that the principal
effect of the Woolcock Street case is to clarify the matters which a plaintiff must prove
in order to establish a duty of care.
13.71 The High Court took a similar approach in Brookfield Multiplex Ltd v
Owners Corporation Strata Plan 61288.223 In that case, a building company was
held not to owe a duty of care to the owners corporation of a commercial serviced
apartment complex not to inflict pure economic loss arising from latent defects in
the common property. The builder’s contract contained detailed provisions about
its responsibilities. Subsequent purchasers were protected and thus not relevantly
vulnerable, because their contracts also contained provisions about construction
and repair works.
13.72 The common law principle established by Bryan v Maloney has to some
extent been overtaken by legislation, at least in relation to domestic buildings. All
of the Australian jurisdictions (other than Western Australia and the Northern
Territory) have enacted provisions224 that not only impose statutory warranties of
quality on the builder and provide for compulsory insurance by the builder in case
of default, but also ensure that this protection inures for the benefit of subsequent
purchasers of the home. However, Bryan v Maloney is still of some relevance even
in relation to private dwellings. The above legislation fixes a limitation period by
reference to the time when the breach of the statutory warranty occurred, whereas
liability under Bryan v Maloney, being based solely on the negligence of the builder,
has a limitation period running from the time when the defect was discovered or
discoverable: see 28.15.
13.73 Apart from the liability of the builder, it is also clear that an engineer,
architect or other professional person engaged by the builder in the construction
process will owe a duty of care to the person who owns the building when any
defect comes to light.225 Thus, the designer of an agricultural irrigation system, to be
installed by a third party, was found to owe a duty of care to the owner of the farm
on which the irrigation system was installed.226 The engineer or architect will not
necessarily be absolved from that duty despite the current owner having engaged
another professional to examine the building prior to purchase.227
221. See Makawe Pty Ltd v Randwick City Council (2009) 171 LGERA 165; [2009] NSWCA 412 at [63] per
Campbell JA (NSWCA).
222. Codd, Hinchey and Nase, ‘An Alternative View of Woolcock Street Investments v CDG Pty Ltd’ (2004)
12 TLJ 194. See also the comment in Body Corporate No 207624 v North Shore City Council (Spencer on
Byron) [2013] 2 NZLR 297; [2012] NZSC 83 at [156] per McGrath and Chambers JJ that this test of
vulnerability might ‘prove to be difficult to apply’.
223. (2014) 264 CLR 185; [2014] HCA 36.
224. Building Act 2004 (ACT) s 88(2); Home Building Act 1989 (NSW) ss 18B, 18D; Domestic Building
Contracts Act 2000 (Qld) ss 49–51; Building Work Contractors Act 1995 (SA) s 32; Housing Indemnity
Act 1992 (Tas) ss 7, 8; Domestic Building Contracts Act 1995 (Vic) ss 8, 9.
225. Morton v Douglas Homes Ltd [1984] 2 NZLR 548; Lester v White [1992] 2 NZLR 483. Although Voli
v Inglewood Shire Council (1963) 110 CLR 74 was concerned with the liability of an architect for physical
injury arising out of a defect in design, it was regarded as relevant to the determination of the duty of care
in Bryan v Maloney (1995) 182 CLR 609 at 624–5.
226. Valleyfield Pty Ltd v Primac Ltd [2003] QCA 339.
227. National Mutual Life Assoc of A’asia Ltd v Coffey & Partners Pty Ltd [1991] 2 Qd R 401 (FC).
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
570
13.74
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  570
13.74 The only matter about which some doubt persists is whether the duty owed
by a builder, engineer or architect is affected by any terms of limitation or exclusion
in the contract that any of them may have had with the original owner. While the
builder might properly claim that it would be unjust to expect a standard of skill
and care higher than that which had been promised to the original owner, the
subsequent purchaser might equally urge that he or she should not be bound by the
terms of a contract to which that purchaser was not a party and of which he or she
knew nothing. Although the issue has not been the subject of decision yet, it appears
that while such a contract could not affect the existence of a duty of care to the
subsequent purchaser, it would be relevant in determining what standard was to be
expected of the builder, engineer or architect.228
13.75 Local authority Until the early years of this century, there was no doubt
that, in New Zealand, a local authority owed a duty to the subsequent purchaser of
a domestic dwelling to take care in carrying out inspections of the structure while
it is in the process of construction. This principle was established by the Court of
Appeal in 1979, in Mt Albert Borough Council v Johnson,229 which was followed by a
steady stream of cases and reaffirmed by the Court of Appeal and the Privy Council
in Invercargill City Council v Hamlin.230 The basis of the last-named decision was
that homeowners in that country had for more than two decades relied upon local
authority building inspectors to see that dwellings were constructed with skill and
care, and (what is more important for present purposes) that local authorities had
accepted that role and assumed responsibility, together with the builder, for the
proper construction of the house or other building.
However, in the first decade of this century the authority of the Hamlin case was
challenged, on the basis that there had been a substantial change in the legislative
framework relating to the building industry. A series of decisions culminated
in an appeal by the North Shore City Council to the Supreme Court of New
Zealand,231 in which the court held that local authorities owed a duty of care,
in their inspection role, to owners, whether original or subsequent, of premises
designed to be used as homes.232 In a subsequent appeal to the Supreme Court in
relation to a 23-storey structure containing 249 individually owned hotel rooms
and six penthouse apartments,233 it was held that no distinction could be drawn
between buildings designed to be used as homes and commercial buildings, and
that local authorities owed a duty of care to the owners of any type of structure.234
The court made it clear that the duty extends to situations in which architects,
228. Bowen v Paramount Builders (Hamilton) Ltd [1977] 1 NZLR 394 at 407 per Richmond P (CA); Bryan
v Maloney (1995) 182 CLR 609 at 624–5 per Mason CJ, Deane and Gaudron JJ, at 640–1 per Brennan J,
at 663 per Toohey J; Woollahra Municipal Council v Sved (1996) 40 NSWLR 101 (CA) at 141 per Clarke JA;
White v Jones [1995] 2 AC 207 at 268 per Lord Goff (HL); Hill v Van Erp (1997) 188 CLR 159 at 196 per
Gaudron J; see also Sir Robin Cooke, ‘An Impossible Distinction’ (1991) 107 LQR 46 at 65–7.
229. [1979] 2 NZLR 234.
230. [1994] 3 NZLR 513 (CA); [1996] AC 264.
231. North Shore City Council v Body Corporate 188529 (Sunset Terraces) [2011] 2 NZLR 289; [2010] NZSC 158.
232. Ibid at [9] per Elias CJ, at [51] per Blanchard, Tipping, McGrath and Anderson JJ.
233. Body Corporate No 207624 v North Shore City Council (Spencer on Byron) [2013] 2 NZLR 297; [2012]
NZSC 83.
234. The earlier decisions of the New Zealand Court of Appeal denying the existence of a duty of care by the
local authority in Te Matai Properties Ltd v Hastings District Council [2009] 1 NZLR 460; [2008] NZCA
446 which related to a motel, and in Queenstown Lakes District Council v Charterhall Trustees Ltd [2009] 3
NZLR 786 concerning a luxury lodge, were consequently disapproved.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
571
The Negligent Infliction of Purely Economic Loss 13.78
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  571
engineers and other professionals had been involved in the construction, and
to cases where the owner was not the occupier. The rationale for imposing this
duty of care lay in the control that local authorities have over all aspects of a
building project, and in the reliance which owners place on councils to exercise
that control with due care, especially in relation to features that are covered up in
the course of construction.
13.76 The possible liability of a local authority in Australia is far less certain. While
homeowners in Australia may well rely on a local authority to carry out an independent
check on the work of a builder, it is difficult to predicate that local authorities have
assumed that responsibility. Although there have been two decisions in New South
Wales in which the owner of a defectively built house successfully sued the local
authority, in both cases the liability was based on a negligent misrepresentation
made by the local authority in, or in the course of issuing, a certificate of occupancy
and use.235 In Makawe Pty Ltd v Randwick City Council,236 it was held that the fact
that the defendant was a local government body was one among a number of salient
features to take into account, as in any other case of possible liability for purely
economic loss, as discussed in 13.48–13.54; and in Ryde City Council v Tourtouras,237
a referee appointed by the District Court found that the council had been negligent
in failing to detect defects in construction, a conclusion which was not challenged
in the subsequent litigation. In Victoria, a local council has been held liable to a
building owner by virtue of the terms of local legislation and not on the basis of the
common law principles discussed here.238
13.77 When a local authority issues a certificate of occupancy and use, the sole
purpose of the certificate is to prevent the council from later asserting that the
building must be demolished because of its non-compliance with the plans and
specifications. In some cases, the legislation relating to the issue of such certificates
makes express provision to that end.239 In more general terms, it was asserted by
Deane J in Sutherland Shire Council v Heyman240 that such legislation:
… has never traditionally been seen as intended to place on a local council the duty
or burden of protecting an owner of premises from mere economic loss sustained by
reason of the negligent erection, by someone other than the council, of a building on
his or her land.
If there is no assumption of responsibility by the local body, one of the essential
elements of a duty of care to the subsequent owners of a building is missing.
13.78 Subcontractors Although there is no reason to doubt that, on the application
of the principles discussed above, a subcontractor to the builder would owe a duty of
care to a subsequent owner of the premises, it is most unlikely that the original owner
235. Pisano v Fairfield Municipal Council (1991) 73 LGRA 184 (NSW CA); Woollahra Municipal Council v Sved
(1996) 40 NSWLR 101 (CA). In both cases, the certificate was issued under the Local Government
Act 1919 (NSW) s 317A, but that section was repealed with effect from 1 January 1988. And see Port
Stephens Shire Council v Booth (2005) 148 LGERA 351; [2005] NSWCA 323 (council liable for making a
negligent misrepresentation under environmental protection legislation).
236. (2009) 171 LGERA 165; [2009] NSWCA 412 (NSWCA).
237. [2007] NSWCA 218.
238. Moorabool Shire Council v Taitapanui (2006) 14 VR 55; [2006] VSCA 30.
239. Building Act 2004 (ACT) s 68; Building Act 1993 (NT) s 72; Development Act 1993 (SA) s 67(7);
Building Act 1993 (Vic) s 46.
240. (1985) 157 CLR 424 at 511.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
572
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  572
13.78
would be able to sue a subcontractor in tort for damage resulting from defective
workmanship.241 While a subsequent owner may well be able to demonstrate the
necessary reliance and assumption of responsibility, it is improbable that the original
owner would be able to prove those twin elements of the duty of care. The original
owner’s remedy, if any, lies in contract with the head contractor.
The House of Lords on appeal from Scotland, in Junior Books Ltd v Veitchi Co Ltd,242
concluded that a building owner could sue a subcontractor in tort for the loss suffered
through the latter’s defective workmanship. However, that case has lost all authority
in England,243 and there is a series of decisions at first instance in Australia the effect
of which is to deny that there is sufficient relationship between such parties to found
a duty of care.244 The parties, it is said, having structured their relationship in such a
way as to preclude any contractual liability, because of the operation of the doctrine of
privity of contract, it would be inconsistent with their presumed intentions to find an
assumption of responsibility by the subcontractor to the building owner.245
Economic loss and wills
13.79 A person who does not receive a benefit that a testator intended to bestow
because of the carelessness of the testator’s professional adviser in the preparation,
drawing or execution of a will, has a good cause of action against that adviser for the
loss thereby suffered. This principle was established in New Zealand in 1983,246 in
England in 1995,247 in Australia in 1997248 and in Canada in 2000.249
13.80 Reference has been made throughout this chapter to the fact that, in
determining whether there is a duty of care to prevent purely economic loss, the courts
are concerned to ensure that liability is limited to something more confined than that
241. Cf Gunston v Lawley (2008) 20 VR 33; [2008] VSC 97, in which Byrne J, in an obiter comment at [22],
considered that for a subsequent owner to succeed against a defendant, the owner must show that such a
defendant owed a duty of care to the original owner.
242. [1983] 1 AC 520.
243. See, eg, Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758 at 784 per Dillon LJ
(CA); D & F Estates Ltd v Church Commrs for England [1989] AC 177 at 202 per Lord Bridge (HL) and
the subsequent comment of Lord Bridge in Murphy v Brentwood District Council [1991] 1 AC 398 at 481
suggesting that the decision in the Junior Books case could be supported as an application of the principles
established in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465.
244. Nielsen (FW) (Canberra) Pty Ltd v PDC Constructions (ACT) Pty Ltd (1987) 71 ACTR 1 at 8 per Kelly J;
CBD Investments Pty Ltd v Ace Ceramics Pty Ltd (1992) 10 BCL 437 (NSWSC); Christiani & Nielsen Pty Ltd
v Goliath Portland Cement Ltd (1993) 2 Tas R 122 (FC); Jones (Robt) (363 Adelaide Street) Pty Ltd v First
Abbott Corp Pty Ltd (1997) 14 BCL 282 at 306 per White J (Qld SC); cf Gunston v Lawley (2008) 20 VR
33; [2008] VSC 97, in which Byrne J commented at [27] that there is ‘no general principle of law that a
sub-contractor cannot owe a duty of care to [an original owner] with which it has no direct contractual
relationship’.
245. To the same effect is the comment of Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145
at 195–6 (HL) and that of the Supreme Court of Canada in Design Services Ltd v Canada (2008) 293 DLR
(4th) 437 at [56].
246. Gartside v Sheffield, Young & Ellis [1983] NZLR 37 (CA) (failure to have the will drawn and executed
before the testator’s death).
247. White v Jones [1995] 2 AC 207 (HL) (failure to have the will drawn in time), approving Ross v Caunters
[1980] Ch 297 (failure to ensure proper execution of will). See also Markesinis, ‘Five Days in the House
of Lords: Some Comparative Reflections on White v Jones’ (1995) 3 TLJ 169.
248. Hill v Van Erp (1997) 188 CLR 159; see also Watts v Public Trustee [1980] WAR 97 (in both cases the
negligence lay in a failure to ensure that the will was properly executed).
249. Earl v Wilhelm (2000) 183 DLR (4th) 45 at [41], [42] (Sask CA); leave to appeal was refused by the
Supreme Court of Canada: 191 DLR (4th) vi.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
573
The Negligent Infliction of Purely Economic Loss 13.81
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  573
determined by notions of reasonable foreseeability. Those limits have been found by
the application of such requirements as reliance by the plaintiff on the defendant, an
assumption of responsibility by the defendant towards the plaintiff, the vulnerability
of the plaintiff to the loss and the plaintiff’s membership of a small and ascertained
class. The relationship between a testator’s professional adviser250 and a disappointed
beneficiary, while not being marked by reliance by the latter on the former, is one in
which the adviser has clearly assumed the responsibility for care in the preparation of
the will. It is also a relationship which, by reason of the beneficiary’s possible ignorance
of the testator’s intentions, leaves the beneficiary peculiarly vulnerable to any loss
suffered, and is one in which the number of possible claimants, and the value of their
disappointed expectations, is known to the adviser at the time that the professional
duties are first undertaken. Furthermore, such a situation has been seen251 as one in
which the law of negligence must be called in aid to fill what would otherwise be a gap
in the law. If there were no duty of care owed to the client, the only person whose rights
have been infringed (the testator and, after the death, the estate) has suffered no loss,
and the only person who has suffered a loss would not have a valid claim.
13.81 The liability under consideration is subject to some limitations flowing from
the fact that it is a means whereby the law of tort is used to correct a perceived
deficiency in the law of contract. First, it applies only to carelessness in the drawing
and execution of a will, and to ensuring that the property intended by the testator
to form part of the estate is available for distribution.252 The liability does not extend
to render liable to a beneficiary a solicitor who fails to advise the testator, in other
independent transactions, of the best means of conserving the latter’s estate.253 As
the High Court of Australia recently held, the liability does not extend to render a
solicitor liable to a beneficiary for a failure to advise the testator on the steps to be
taken to avoid exposing the estate to a claim for testator’s family maintenance.254 In
the case of the drawing or execution of a will, the interests of the testator and the
beneficiary coincide, whereas in these circumstances, the interests diverge, such that
the solicitor does not owe an independent duty to the beneficiary.255 Second, liability
accrues only if the solicitor’s error remains undiscovered until after the testator’s
death, and is therefore no longer remediable;256 it may be assumed that a legal adviser
would generally not owe a duty of care to those intended to benefit under an inter
vivos transaction, unless the circumstances were such as to prevent the transaction
from being rectified.257 Third, the professional adviser’s liability is subject to any
250. Although in almost all cases the defendant has been a solicitor, the duty under discussion is imposed
on any person who claims to have similar expertise: Esterhuizen v Allied Dunbar Assurance plc [1998]
2 FLR 668 (Eng QB).
251. White v Jones [1995] 2 AC 207 at 259–60 per Lord Goff; Hill v Van Erp (1997) 188 CLR 159 at 195–6 per
Gaudron J.
252. Carr-Glynn v Frearons [1999] Ch 326 (CA).
253. Clarke v Bruce Lance & Co [1988] 1 All ER 364 (CA); see also Knox v Till [1999] 2 NZLR 753 (CA)
(solicitor under no duty to refuse to prepare a will on the grounds of the testator’s lack of testamentary
capacity).
254. Badenach v Calvert (2016) 257 CLR 440 at 452–53 per French CJ, Kiefel and Keane JJ; [2016] HCA 18.
255. Badenach v Calvert (2016) 257 CLR 440 at 452, 455–56 per French CJ, Kiefel and Keane JJ; [2016]
HCA 18.
256. White v Jones [1995] 2 AC 207 at 268 per Lord Goff.
257. Cf Hemmens v Wilson Browne [1995] Ch 223.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed
.
Size 6 (Black & Silver Series)
Page size 241 x 165mm
Text width 127mm (30 picas)
Text depth 199mm (47 picas)
Text depth including headers and footers 211mm (50 picas)
Balkin & Davis Law of Torts
574
13.81
TRIM SIZE: 165 x 241mm
08/06/2021    04:19:20
203591
Spi-Rolph et al - Law of Torts 6th ed Ch.13.indd  574
contrary provisions which may be implied in the contract of retainer.258 Fourth,
because the purpose of this duty of care is to fill a gap in legal protection, a duty of
care will not be owed to an intended beneficiary where the estate would have the
same remedy available to it for a breach of duty by the solicitor.259 Fifth, no duty
of care is owed by a solicitor to the intended beneficiary for a will drawn up by
the solicitor as to the testator’s share of a joint tenancy where the severance of the
joint tenancy was not sought as part of the instructions to the solicitor, nor was the
severance of the joint tenancy integral to giving effect to the testator’s intention.260
13.82 A duty of care not to inflict pure economic loss may be owed not only by the
solicitor who drew up the will but also a subsequent solicitor who is involved in the
implementation of the will. For instance, a solicitor who did not draw up the testator’s
will but who assisted a person holding a power of attorney over the testator breach the
fiduciary duty owed to the testator, while the testator was alive, and thereby frustrated
the testator’s intentions, was held to owe a duty of care to an intended beneficiary.
In McFee v Reilly, a solicitor drew up a will for a testator, under which the testator
left all his real and personal property, except for a farming property, to his four adult
daughters. Due to a clerical error, no beneficiary was named for the farming property.
The testator became mentally incapacitated. The testator’s wife, who had a power of
attorney, engaged a second solicitor, who assisted with the transfer of the farming
property to the daughters. After the testator’s death, the testator’s son sued the second
solicitor for negligently inflicted pure economic loss.261
258. Queensland Art Gallery Board of Trustees v Henderson Trout [2000] QCA 93 (testator had not, at the time of
her death, finally determined to benefit the appellant, hence respondents’ delay in preparing a will did not
expose them to liability); see also White v Jones [1995] 2 AC 207 at 268 per Lord Goff.
259. Vagg v McPhee (2013) 85 NSWLR 154 at 158–59 per Basten JA, 162–63 per Tobias JA; [2013] NSWCA 29.
260. Vagg v McPhee (2013) 85 NSWLR 154 at 158–59 per Basten JA, at 165–66 per Tobias JA; [2013] NSWCA 29.
261. McFee v Reilly [2018] NSWCA 322 at [139]–[149] per Leeming JA.
Rolph, D., Varuhas, J., & Crossley, P. (2021). Balkin and davis law of torts. LexisNexis Butterworths.
Created from unimelb on 2023-08-11 07:16:16.
Co
py
rig
ht
©
2
02
1.
L
ex
isN
ex
is
Bu
tte
rw
or
th
s.
A
ll r
ig
ht
s
re
se
rv
ed