The Statement: In Tort Law, Pure Economic Loss is Never Recoverable in an Action for Negligence - Essay Example

?In Tort law, pure economic loss is never recoverable in an action for negligence Introduction This paper seeks to assess the ment “In Tort law,pure economic loss is never recoverable in an action for negligence’. Negligence in tort law may be in respect of negligence in duty of care or negligent misstatement which may result in economic loss to a third party. Generally speaking, if the economic loss is relatable to damage to the plaintiff or the plaintiff’s property, it could be properly construed as consequential loss which could be recovered positively based on the facts of the case. The application of the concept of pure economic loss has been very limited in the English legal landscape, and restricted mostly to fatal accidents; for instance, the economic consequence of loss of life of the breadwinner in a family caused by an accident due to negligence. However, the concept is evolving to cover other cases over the period of time. Pure economic loss In the case of pure economic loss, the loss strikes the victim’s wallet without any harm to the plaintiff’s person or property. According to Bussani & Palmer (2003, p. 4), there has never been a universally accepted definition of ‘pure economic loss’ and a number of legal systems neither recognize the legal category nor distinguish it as an autonomous form of damage. An act of negligence causing physical damage to a person may cause pure economic loss to another. It becomes non recoverable if the act is unintentional. The cause and effect relationship with reference to the breach of one’s duty and pure economic loss in relation to its impact on the complainant is very complicated in nature. Not only the gravity of the situation, but also the circumstance, varies from case to case. The factual causation is different in its scope from 'legal causation'. According to Cardozo, J., liability is “in an indeterminate amount for an indeterminate time to an indeterminate class”. Irrespective of the terminology used such as ‘remoteness’ in the case of UK or ‘proximity’ in the case of US, the principles of neighborhood and foreseeability are considered crucial and very important in awarding damages. According to Emanuel & Emanuel (2009, p. 217), if a person suffers only intangible economic harm, with no personal injury or property harm, (to someone or anyone within the zone), the situation is difficult. Assuming that someone was directly injured then you have an issue about whether one can recover for his pure economic loss. Negligence in duty of care Individuals owe duty of care to strangers even when they are not related to them by way of any formal contracts. Any activity either performed individually or in group, if it results in harm to others, either physically, mentally or economically, according to the principles of justice, they are liable for their failure in exercising duty of care in their actions. Taking reasonable care in preventing harm to others or avoiding acts or omissions which one can reasonably foresee would likely to injure others, is the underlying point.  When a person is not responsible for an incident which resulted into injury to others, the person is not liable, and this principle was established in the case of Donoghue v Stevenson [1932] AC 562  A causal relationship exists between negligence and the damages caused. The neighbourhood principle established in Donoghue v Stevenson [1932] AC 562 was expanded in scope in the later cases to cover various forms of duties and situations.  It was established in Anns v Merton London Borough Council [1978] AC 728 known as Anns test states that: A sufficient relationship of proximity or neighbourhood exists between the alleged wrongdoer and the person who has suffered damage, such that carelessness on the part of the former is likely to cause damage to the latter. In Caparo Industries plc v Dickman [1990] 2 AC 605, the threefold test, ‘reasonably foreseeable’, ‘proximity or neighbourhood’ and ‘fair, just and reasonable to impose liability’ was established. It was held, the harm which occurred must be a reasonably foreseeable result of the defendant's conduct; A sufficient relationship of proximity or neighbourhood exists between the alleged wrongdoer and the person who has suffered damage;        It is fair, just and reasonable to impose liability.  The word ‘sufficient’ has added emphasis to the existence of relationship of proximity or neighbourhood.  In this case, it was held that the defendant auditor was not liable because their duty was to the company and its shareholders, not to potential investors. Although the claim passed the foreseeability test, it failed on the proximity test because of a lack of “proximity” between auditors and potential investors, there was no liability. It is also pertinent to note here, that the accidents can occur for many reasons, and additional evidence favorable to the victim may be lost without prompt action by victims and their family as pointed out by Barry G. Doyle, P.C. (2011) Negligent misstatement Negligent misstatement refers to the statement of a fact, which is carelessly made, and is relied on by another party to their detriment. The extent of liability in the case of negligent misstatement varies from case to case and the affected person can claim for economic loss even if there is no contractual or fiduciary relationship exists between the parties. In the case of Hedley Byrne v Heller and Partners (Witting, 2000, p. 616), Hedley Byrne, a firm of advertising agents wanted to check the financial position and credit worthiness of a customer Easipower Ltd. Heller & Partners Ltd., in a letter stated Easipower was, "considered good for its ordinary business engagements". The letter was issued without responsibility on the part of Easipower’s bank. It was held that the relationship between the parties was sufficiently proximate as to create a duty of care. Liability for negligence Liability may arise due to negligence in exercising due care and diligence in the performance of various services related to professionals like surveyors, doctors and accountants. Also, an employer is liable for the actions of the employee based on the general principle of enterprise liability. Professional negligence Professional negligence cases have been noticed in a very large scale during the recent years. There is a duty of care to third parties involved in the services provided by the professionals like doctors, accountants, architects, lawyers and surveyors and they need to exercise due care and diligence in their acts or in preparation and certification of statements. Those who render advice, services or prepare statement concerning financial as in the case Hedley Byrne v Heller and Partners need to exercise caution since the information might be relied upon by the third parties with whom they have no contractual relationship. Professional services for a client may cause pecuniary loss to a non-client. Where a person exercises a particular specialist skill or calling, his conduct will be measured with reference to a reasonable practitioner of that skill or calling, for example surgeon, surveyor or solicitor. In the case of medical negligence, Bolam Test was established in the case of Bolam v Friern Hospital (1957) 1 WLR 582 which is the measure of standard of care in the management of the patient, and it applies not only to doctors, but all professionals. Shanmugam (2002, P. 10) states “the rights of the doctors have to be balanced by the rights of the patients, while at the same time keeping the societal interests in perspective”. Vicarious liability Under vicarious liability, the employers are liable for the actions of their workers or agents towards others as they do their work based on the theory of enterprise liability. Markesinis states that in English common law tort has served such modern problems as product liability or liability for negligent statements, whereas French and German law has traditionally relied on contractual solutions. In contrast, the German Civil Code has a basic (tort) provision excluding compensation for negligently inflicted pure economic loss that, along with a narrow rule of vicarious liability, has encouraged the expansion of the law of contract. Floodgates argument in pure economic loss According to Bar & Drobnig (2004, p. 124), the ‘floodgates’ argument is the most important one propounded which has three strands. Firstly, permitting recovery of pure economic loss would result into infinity of actions that would burden the courts. The negligence may necessitate closure of markets and motor way where thousands of people would be financially damaged. The second strand of argument is fear which places excessive burden on the defendant because it is impossible to predict the staggering liability which will be out of all proportion. The third strand is the need to keep under control the modern trend towards increasing tort liability. Analysis Lindenbergh (2006, p. 237) states “Pure economic loss, being the collective form of general loss resulting from a specific infringement upon a protected interest, appears to be one of the most controversial issues in the law of damages…” The discussion about ‘Pure economic loss’ is fraught with several conflicting views and the question of imposing excessive burden on individual activities. The interaction of meta-legal formants such as political situation, economic situation, social values and the development of the legal system in the country significantly affect the court decisions apart from the circumstances obtained in a particular case. The concept of pure economic loss raises the greatest concern about ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class”, in the words of Cardozo, C. J. in Ultramares Corp. v. Touche, Niven & Co., 174 N. E. 441 (N.Y.1931. It is accentuated by the fact that a single act by a person can cause the highways and markets to close resulting into economic loss to many people. The chain reactions of such incident and the treatment (or mistreatment) of loss of a chance to make profit in future complicates the issue further. Palmer & Bussani (2007, p. 77) stated: “It is clear that the legal systems under review are particularly divided over methodology, theories of relief, and causes of action… legal systems are also split over the outcomes that should occur in a number of loss situations” and concluded, “Across facades, regimes and traditions, pure economic loss is recoverable whenever the latter is a direct consequence of the infringement of a right or of an interest that the legal system means to protect. If we judge by developments of the past forty years, this frame has been increasing and is likely to continue to grow”. Northwestern University Law Review (2010, p. 103) states “Although the pure economic loss rule has been remarkably durable in the common law, it suffers from a theoretical deficit. The rule has not been properly framed within the broader context of Anglo-American political Economy”. Therefore, it is in this analytical backdrop, the discussion about pure economic loss should be considered for understanding the issues in proper perspective. Conclusion The discretionary powers of the judiciary play an important role in the interpretation of the law and precedents in deciding the cases; it increase with the increase in complexities of the cases. The interpretation of law and the precedents vary from the jurisdiction to jurisdiction as can be seen from the reversal of the decisions of the lower courts. Similar cases tend to face different decisions due to lack of evidences to the satisfaction of the courts. When terminology is wide, it lends flexibility to interpretation and application of law which might result in less than normal liability or escape from liability. Therefore, in tort law, pure economic loss is recoverable in an action for negligence, but the process is fraught with uncertainties. References Bar, C. V. & Drobnig, U., ‘The interaction of contract law and tort and property law in Europe: A Comparative Study’, European Law Publishers, 2004. Bussani, M. & Palmer, V. V., Pure Economic Loss in Europe, Cambridge University Press, 2003, Retrieved May 2, 2011 from http://bilder.buecher.de/zusatz/22/22512/22512991_lese_1.pdf Emanuel, S. & Emanuel, L., Emanuel Law Outlines Torts, Aspen Publishers, 2009. Lindenbergh, S. D., Damages (in tort), Elgar Encyclopedia of Comparative Law, Ed. Simits, Jan. M., Edward Elgar Publishing Limited, 2006. Markesinis, B. S., Negligently inflicted Pure Economic Loss, Encyclopedia Britannica, Retrieved May 2, 2011 from http://www.britannica.com/EBchecked/topic/600206/tort/16474/Negligently-inflicted-pure-economic-loss Northwestern University School of Law, A Production Theory of Pure Economic Loss, Northwestern University Law Review, Vol. 104, No. 1, 2010, Retrieved May 3, 2011 from http://www.law.northwestern.edu/lawreview/v104/n1/49/LR104n1Rhee.pdf Palmer, V. V. & Bussani, M. Pure Economic Loss: The Ways to Recover Electronic, Journal of Comparative Law, vol. 11.3, 2007, Retrieved May 3, 2011 from http://www.ejcl.org/113/article113-9.pdf Shanmugam, Testing the Bolam Test: Consequences of Recent Developments, Singapore Med J, 43 (1), 2002, Retrieved May 4, 2011 from http://www.sma.org.sg/smj/4301/4301l1.pdf The Law Offices of Barry G. Doyle, P.C., A Cook accident attorney can help with a trucking accident in Illinois, 2011, Retrieved May 4, 2011 from http://www.accidentlawillinois.com/practice_areas/trucking-accident-in-illinois-crash-injuries-cook-accident-attorney.cfm Witting, C., ‘Justifying Liability to Third Parties for Negligent Misstatements’, Oxford Journal of Legal Studies, Vol. 20, No. 4, pp. 615-643, 2000. Read More