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TORT CLAIMS IN ENGLISH LAW FOR PURE ECONOMIC LOSS CAUSED BY NEGLIGENCE

This presentation by Julian Burling discusses the overlap between tort and contract, liability for negligence causing economic loss, duty of care, and landmark case law rulings shaping the legal landscape in English law. Learn about the tests and principles determining liability for economic loss in negligence cases.

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TORT CLAIMS IN ENGLISH LAW FOR PURE ECONOMIC LOSS CAUSED BY NEGLIGENCE

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  1. TORT CLAIMS IN ENGLISH LAW FOR PURE ECONOMIC LOSS CAUSED BY NEGLIGENCE AIDA Reinsurance Working Party Helsinki, Thursday 16 June 2016 Julian Burling

  2. Overlap between tort and contract • Tort damages arising from contractualsituations • Professional retainers/E&O cover • Parallel duties • Higher degree of foreseeability of damage for liability in contract • Tort limitation period accrues later, at time of damage • Liability of subcontractors/sub-agents

  3. Liability in tort for negligence • Duty of care owed by D to P (proximate relationship) • Breach of duty of care • Damage/loss caused by breach that is not too remote • Historically, no liability in tort for negligence causing pure economic loss – until Hedley Byrne v Heller [1964] AC 465 (HL)

  4. “Ricochet”: Scope of liability for pure economic loss Pure economic loss of P arising from physical damage caused by D to property of TP in which P has no proprietary interest is not recoverable • Spartan Steel and Alloys v Martin [1973] QB 27 (CA) • Candlewood Navigation v Mitsui OSK [1986] AC 1 (UKPC)

  5. Scope (2) No liability to TP purchasers for economic loss caused by defects in components supplied by manufacturer and incorporated in goods sold to purchaser Muirhead v Industrial Tank Specialities [1986] QB 507 (CA)

  6. Whether duty of care not to cause economic loss: 3 alternative tests • (1) Threefold test • (2) Assumption of responsibility • (3) “Incremental” test • These can overlap but sometimes one of them fits the facts better than the others • No single common denominator in economic loss cases by which liability may be determined C&E Commrs v Barclays Bank [2006] UKHL 28

  7. Whether duty of care not to cause economic loss (1): Threefold test • Was the harm foreseeable? • Was there sufficient proximity between the parties? • Would the imposition of a duty of care be “fair, just and reasonable” (policy)? Caparo v Dickman [1990] 2 AC 205 (HL) (statutory auditors owed no duty of care to first time investors in target co.)

  8. Duty of care? Test (2): assumption of responsibility to P • Responsibility may be parallel to duty of care in contract • May be owed to person other than that to whom contractual duty is owed • P must (normally) have relied on D’s assumption of responsibility and (professional) skill and judgement • Henderson v Merrett [1995] 2 AC 145 (HL) Professional managing agents of Lloyd’s syndicates liable to “indirect names” for negligent underwriting cf White v Jones [1995] 2 AC 207 (HL) Dilatory solicitor liable to Intended beneficiaries under a will that he delayed drafting

  9. Duty of care? Test (3): Incremental 'It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable 'considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.'‘ per Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424, 481 (HCA) approved by Lord Bridge in Caparo Industries v Dickman [1990] 2 AC 605, 618 (HL)

  10. Property Local authority not liable to subsequent purchaser for estimated cost of pre-emptive repairs necessitated by negligent approval of house plans under building regulations: in what is essentially a consumer protection field the liability of local authorities is best left to the legislature Murphy v Brentwood DC [1991] 1 AC 398 (HL) Cf law of NZ as found by PC in Invercargill City Council v Hamlin [1996] AC 624

  11. Property (2) Builder engaged by lessees has no liability in tort to sub-lessee for cost of works to remedy defects in building where no imminent danger to persons or property. No recovery for pure economic loss. Dept of Environment v T Bates [1991] 1 AC 499 (HL)

  12. Negligent misstatements Bankers’ credit references where “special relationship” or “assumption of responsibility”, provided there is no disclaimer Hedley Byrne v Heller [1964] AC 465 (HL) cf Playboy Club London v BNL [2016] EWCA Civ 457

  13. Negligent misstatements (2) Liability of employer to former employee for failure to take reasonable care in preparing his reference for TP, resulting in TP’s refusal to appoint him (no actionable defamation here, because qualified privilege) Spring v Guardian Assurance [1995] 2 AC 296 (HL

  14. Negligent misstatements (3) Surveyor appointed by mortgagee owes duty of skill and care to purchaser of modest house, where the purchaser relies on it, whether or not he sees report; and is liable for loss in value of house Smith v Eric S Bush [1990] 1 AC 831 (HL) Cf where disclaimer of assumption of responsibility where sale involves commercial, industrial or expensive residential property

  15. Solicitors Where there is no conflict of interest in the transaction the law may imply a duty of care owed by a borrower’s solicitor to the lender to ensure that effective security is created in favour of the lender when both parties desire it and rely on his advice Dean v Allin & Watts [2001] EWCA Civ 758

  16. How would an English court have decided Wagner v Abadi and Leumi Bank? • Was Wagner negligent by lawyers’ ordinary standards? • What responsibility, if any, did Wagner assume towards Leumi? • Did Wagner warrant or represent anything to Leumi, any more than that they had authority to act on behalf of a person apparently holding a power of attorney on behalf of Mr and Mrs Abadi? – cfExcel Securities v Masood [2010] Lloyd’s Rep PN 165 (QB) • Did Leumi rely on anything done or said by Wagner for its benefit? • Was Discount Bank negligent by bankers’ ordinary standards? • What responsibility did Discount Bank assume to Leumi? • Was Barel’s fraud foreseeable? • Barel was in direct contact with Leumi; should Leumi have carried out its own checks? cfExcel Securities v Masood [2010]

  17. Fatal Accidents Act 1976 • “Dependants” can sue through the deceased’s PRs within 3 years after death • Circs of death must have been such that deceased could have sued for injury • Damages for: • a. bereavement • b. funeral expenses • c. loss of support • For each dependant: multiplicand x multiplier

  18. Psychiatric injury to secondary victims of injury (or danger) to primary victim • Close ties of love and affection (not limited to particular categories of relationship) • Sufficient proximity in time and space to event causing injury • Psychiatric injury must be caused by sight or hearing of event or its immediate aftermath – live television transmission showing identifiable individuals suffering may be sufficient Alcock v CC South Yorks[1992] 1 AC 310 (HL)

  19. Direct rights against insurer of tortfeasor • No direct right of TP at common law against insurer • Third Parties (Rights against Insurers) Act 2010, replacing 1930 Act • Where tortfeasor a “relevant person” (in insolvency procedure) rights of insured against liability insurer vest in TP • TP may commence proceedings against insurer before liability of insured is established but may not enforce right against insurer until insured’s liability to him is established • Does not apply to reinsurance • Contracts (Rights of Third Parties) Act 1999 • Where contract provides for benefit to named or identifiable person who is not party to it

  20. Issues for reinsurers: aggregation Aggregation for deductible and cover limit purposes, esp. in claims under E&O policies: 32 run-off contracts written because Mr Outhwaite had a “blind spot” about asbestos were not a “series of … occurrences … arising out of one event” under XL r/i of agents’ E&O – Sharp v Caudle [1995] LRLR 433 (CA) (deductible)

  21. Aggregation (2) • Hundreds of LMX contracts written by 3 underwriters who failed to appreciate the danger of the LMX spiral were for the purpose of the aggregation clause of agents’ direct E&O cover “any one occurrence or series of occurrences arising from one originating cause” – Axa v Field [1996] 1 WLR 1026 (HL) (cover limit) • No assumption that aggregation clauses in XL and underlying E&O are intended to have same effect (ibid. at 1034) (cf one event in XL)

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