#6924 - Torts B Extended Pure Economic Loss (Special Duty Of Care) - Torts Law

Pure Economic Loss Caused By Negligent Acts: Special Duty of Care Scenarios

Third Party Property Damage

Caltex Oil v The Dredge ‘Willemstad’ (1976) 136 CLR 529

• Facts:

  • A dredge was dredging a channel in Botany Bay at night

  • It could be manually operated with equipment keeping it fixed in the same point

  • A chart provided by Decca incorrect co-ordinates

  • As a result, dredging came over an oil pipeline (owned by AOR) which ran to Caltex Oil

  • Those on board the dredge and Decca knew of the pipe and the intention was to avoid it

  • Caltex supplied AOR with crude oil, and AOR would pump it back to Caltex

  • P (Caltex) was forced to use a more costly method of transport

  • Loss was $95,000

  • Both AOR and Caltex brought legal proceedings against owners of dredge and Decca

  • Both Decca and owners were negligent in causing damage to pipeline

  • AOR was successful, Caltex was not and appealed

• Issue before High Court: Did the D owe a duty to the P (Caltex Oil) to avoid causing it to suffer a pure economic loss where the P was a ‘third party’? (it did not own the pipeline)

• The High Court held on a unanimous basis that that the D did owe a duty to the P in the circumstances.

• General rule: one person does not owe a duty to another to avoid causing pure economic loss.

  • Gibbs J: ‘the world of commerce would come to a halt and ordinary life would become intolerable’ if liability were to be upheld for every foreseeable adverse consequence of our acts and omissions (para 50)

  • Examples: a ship destroying a bridge and cutting off people from shops etc

  • Rule was to avoid the spectre of indeterminate liability

• Exception made in this case to general rule.

  • Allowed because the economic loss was the result of negligent conduct by the D that caused material physical damage to the property of another.

  • BUT something more was also required in order to establish liability in this type of case. Why?

    • ‘If economic loss was to be compensated its inherent capacity to manifest itself at several removes from the direct detriment inflicted by the D’s carelessness makes reasonable foreseeability an inadequate control mechanism’ (per Stephen J at 573-4)

  • The D had knowledge or means of knowledge that P individually, and not merely as a member of an unascertained class, was likely in circumstances to suffer economic loss (per Gibbs J at 555)

  • All facts of a particular case to be considered; in this case, material facts included P’s property in physical proximity to damaged property; P and the third party were engaged in a ‘common adventure’ (per Gibbs J at 555)

  • D could reasonably foresee that a specific individual, as distinct from a general class of persons, will suffer financial loss – reduces prospect of indeterminate liability (per Mason J at 593)

    • In this case there was no worry for it as AOC and Caltex were the only people who used the pipe

• Vulnerability of the P (need to take account of the specific/individual P) (per Gleeson CJ at 576-7, 593)

• Features characteristic of this type of pure economic loss (per Stephen J at 576-7):

  • Acknowledgement that a Duty of Care was owed to AOR

  • Fact that P was not less proximately concerned than was AOR in the fact that the pipeline continued to work

  • Nature of the pipeline as major mode of conveyance of products to an identifiable recipient whose use of its terminal was for the receipt of such products

  • Nature of the economic loss, direct and inevitable from severing of pipeline; not speculation

• Summary:

  • as a general rule damages are not recoverable for economic loss which is not consequential upon injury to person or property.

  • An exception that arises is where the D knew or ought to have known that a particular person, not merely a member of an unascertainable class, will be likely to suffer economic loss as a consequence of D’s carelessness.

Salient Features Approach

Perre v Apand (1999) 198 CLR 180

• Facts:

  • P was adversely affected as a result of Apand conduct in supplying diseased potatoes seed stock to a business (S) which grew them in SA and sold them to P

  • It was infected with bacterial wilt

  • WA quarantine laws meant there was a strict ban on any potatoes being imported that have grown near diseased land

  • Apand could no longer sell potatoes in WA

  • Thus Perre could no longer sell their goods

• Key Issue: whether D owed a duty to avoid causing pure economic loss to Pffs (as ‘secondary Plaintiffs’)

• 7 judges heard the appeal and they all gave individual judgments which had different emphases and use different terminology.

• Range of ‘salient features’ can be discerned which resulted in finding that duty of care was owed by D to

• Post-judgment, concerns expressed that it was difficult to identify coherent set of principles in this area of tort law.

  • Vulnerability: Pffs were vulnerable to D as they were unable to protect themselves by contract or by physical barriers from the risk posed by the diseased stock. IMPORTANT FACTOR

  • Control: D had knowledge of risk, rules governing the market, and broadly controlled activities that ultimately caused economic loss.

  • Certainty: D could identify the Pffs as an ascertainable class of vulnerable persons with sufficient certainty because of the operation of the 20 km quarantine rule. This meant that concerns about indeterminate liability had no basis. TRY AND NARROW YOUR FACTS DOWN

  • Actual or constructive knowledge of risk of harm: the D had knowledge of the risk of economic harm to the P

  • Autonomy: D’s autonomy and commercial freedom not unreasonably burdened by extending their liability for their conduct

  • Coherence: no conflict of duties or laws in finding that there was a duty owed by D to Pffs. Any deliberate supply of such diseased stock was illegal and would have exposed D to liability under other laws. Duty also consistent with the law governing the deliberate interference with another’s trade and relevant SA legislation

  • Interference with legitimate business activity: no interference found as duty of care is co-extensive to that already owed and hence no further burden on business activity

  • No Indeterminate Liability: class of persons affected was ascertainable: potato growers or processors located within 20 km radius of affected land. IMPORTANT FACT

• “The losses suffered by the Perres were a reasonably foreseeable consequence of Apand's conduct in supplying the diseased seed; the Perres were members of a class whose members, whether numerous or not, were ascertainable by Apand; the Perres’ business was vulnerably exposed to Apands conduct because the Perres were not in a position to protect themselves against the effects of Apand's negligence apart from insurance (which is not a relevant factor); imposing the duty on Apand does not expose it to indeterminate liability although its liability may be large; imposing the duty does not unreasonably interfere with Apand's commercial freedom because it was already under a duty to the Sparnons to take reasonable care; and Apand knew of the risk to potato growers and the consequences of that risk occurring” (per McHugh J at para 50)

Johnson Tiles: Salient Features

• Facts:

  • Explosions occurred at a gas plant situated in Victoria

  • The explosions killed a number of workers

  • As a result, gas supplies were shut down for nearly two weeks

  • Group proceedings brought against Esso and other: divided into business users, domestic users, people were stood down from jobs

• After considering the salient features of the case, Mr Justice Gillard in the Supreme Court of Victoria found that D did not owe duty of care to Pffs to avoid pure economic loss, but it did owe a duty in relation to property damage.

• Key paragraphs: 1345 – 1351 of Gillard J judgment:

• I have found that on 25 September 1998, Esso owed a duty of care to gas customers in the management and operation of its gas processing plant to avoid a stoppage of gas causing property damage, but on the other hand, did not owe a duty of care to avoid purely economic loss.

• This inconsistency may appear strange and lacking in logic. However, the common law of negligence has not developed uniformly. The principles applicable to one category of common law negligence do not apply to another category; compare a negligent misstatement case with a manufacturer's liability or nervous shock case. Also, even within a category, such as a claim for purely economic loss, compare the negligent misstatement case with the negligent preparation of a will. The law relating to negligence causing economic loss has developed slowly and cautiously.

• I found against a duty of care to avoid purely economic loss for a number of reasons.

  • The gas customers are aware that there is no guarantee of uninterrupted supply, they know what steps can be taken to avoid or minimise the risk of harm to their particular business or interest and it is their choice as to what they should do.

  • Gas customers are in a far better position than anyone else to assess their likely loss due to interruption of supply and if insurance is the preferred means of minimising the loss, they can take out insurance based upon a reasonable assessment of the likely harm and factor the expense of the premium into the price of their products or services. In contrast, the gas producer would have to make a fairly rough and ready calculation to determine its likely exposure and insure accordingly. Whilst the gas customer is...