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DEFINITIONS PURE Economic loss and negligent misstatement

DEFINITIONS THE DEVELOPMENT OF LAW AND THE POSITION IN MALAYSIA
Pure economic loss (or pure financial loss) is the actual financial loss suffered by a party, not causally consequent upon physical injury to the plaintiffs own person or property. As a general rule, the Courts have adopted a very restrictive approach in this area and are reluctant to provide recovery in most cases. Policy factors which include the floodgates argument feature prominently in pure economic loss cases.
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DEFINITIONS
For example, if the plaintiffs factory is damaged due to the negligence of the defendant, ordinary tort law would compensate him to repair his factory while the extra profit he would have earned during the period of repair is an item of pure economic loss.

THE DEVELOPMENT OF LAW

Law on economic loss is actually uncertain and unsettled. Policy reasoning plays a large role in this approach. Taking into consideration this role, the Courts would only allow claims where there exists a special relationship between the parties concerned. Pure economic loss may be incurred either as a consequence of a negligent misstatement or a negligent act, for which different principles need to be considered.

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THE DEVELOPMENT OF LAW Early Cases

CASE 1: Ross v Caunters (1979)3 All ER 580
In this case, it was held that a solicitor failed to warn a testator that a will would not witnessed by the spouse of a beneficiary. As a result, it was considered as a breach in probate law and therefore the beneficiary was unable to benefit the will. She successfully sued the solicitor for her loss.

THE DEVELOPMENT OF LAW Early Cases

CASE 2: Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd (1972)3 All ER 557
The defendants negligently damaged an electrical cable as a result of which the supply to the plaintiffs factory was disrupted for 14 hours. The factory operated 24 hours a day and required continuous electric supply to maintain furnace temperature for melting alloys.

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THE DEVELOPMENT OF LAW Early Cases Spartan Steel

The plaintiffs suffered three items of damage:
The melt which was already in the furnace had to be removed because if it solidified it would damage the furnace. Oxygen was used for this purpose and the effect of this on the melt was to reduce it value by 368 pounds The profit on the above melt would have been 400 pounds If there was interruption of electricity four other melts could have produced at a profit of 1 767 pounds.

THE DEVELOPMENT OF LAW Early Cases Spartan Steel

The defendants admitted negligence but disputed the amount of their liability. Lord Denning observed that it is difficult to explain this type of cases in terms of duty and remoteness. He said that it is better to consider the particular relationship in hand, and see whether or not, as a matter of policy, economic loss should be recoverable.

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THE DEVELOPMENT OF LAW Early Cases Spartan Steel

His Lordship held that the defendants were liable under (i) For physical damage, under (ii) for economic loss truly consequential on the material damage but not under (iii) because it was economic loss independent of physical damage.

THE DEVELOPMENT OF LAW Different Approach No Limitations

In Dutton v Bognor Regis Urban District Council [1972] 1 QB 373, the local authority inspector negligently approved foundations to a house which it turned out had been built on the site of an old rubbish tip. Damage did not manifest itself until the house had been sold on by the original purchaser. The plaintiff Dutton was a subsequent purchaser who sued both the vendor and the Council.
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THE DEVELOPMENT OF LAW Different Approach No Limitations

The Court of Appeal held that the wide power to control building works assumed by the Council under the Public Health Act was exercisable for the protection and benefit of future owners and occupiers and carried with it a duty at common law to take reasonable care to see that the bye-laws were complied with.
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THE DEVELOPMENT OF LAW Different Approach No Limitations

CASE 1: Anns v Merton London Borough (1978) AC 728
It was held in this case that a local authority could owe a duty of care to the building owner if the defect constituted a present or imminent danger to the health or safety of the occupants of the buidling. When the case went to the House of Lords, it was unanimously decided that a duty of care was owed to the owners and occupiers of the houses and Dutton was followed. The HL decided that the cracks on the wall could be viewed as damage to property and is, thus, recoverable.

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THE DEVELOPMENT OF LAW Different Approach No Limitations

CASE 2: Junior Books Ltd v Veitchi Co. Ltd (1983)1 AC 520
It was held that a relationship of proximity between the parties was sufficient for the recoverability of pure economic loss.

THE DEVELOPMENT OF LAW Doubts on Earlier Decisions

CASE: Murphy v Brentwood District Council (1990) 3 WLR 414
The non-recoverability of pure economic loss was sealed in this case whereby the House of Lords held that the Council owed no duty of care to the plaintiff when it approved the plans for the defective raft foundation. This case overruled the decision in Anns.

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THE POSITION IN MALAYSIA

The High Courts in the cases of Kerajaan Malaysia v Cheah Foong Chew [1993] 2 MLJ 439 and Teh Khem On v Wu Development Sdn Bhd & Ors [1995] 2 MLJ 663 followed the approach in Murphys case. In Dr. Abdul Hamid Abdul Rashid & Anor v Jurusan Malaysia Consultants & Ors [1997] 1 AMR 637, the Court held that a claim for pure economic loss can be entertained in an action for negligence.
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THE POSITION IN MALAYSIA

However, the Court of Appeal in the case of ArabMalaysian Finance Bhd v Steven Phoa Cheng Loon & Ors (2003) 2 AMR 6, overruled the High Courts decision in Dr. Abdul Hamids case. On appeal brought by the appellant (the engineers who were found liable) in Lim Teck Kong v Dr. Abdul Hamid Abdul Rashid & Anor [2006] 2 AMR 108, the Court of Appeal dismissed the appeal and affirmed the decision made by the High Court. The Court did not follow the Court of Appeals decision in Arab Malaysian Finance Bhd.
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DEFINITIONS
The tort of negligent misstatement was not founded until 1964. Prior to this claimants had to rely on the law of contract or alternatively use the tort of deceit. Deceit is based on a fraudulent factual misrepresentation, whereas negligent misstatement covers opinions and factual statements made through negligence.
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Definitions The Development of Law The Position in Malaysia

NEGLIGENT MISSTATEMENT

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DEFINITIONS
In the case of Candler v Crane Christmas & Co (1951) 2 KB 164, it was established that any duty of care owed on behalf of the accountants who were negligent in giving advice whilst preparing accounts for the claimants, would give rise to an action under the law of contract rather than tort. The first major development in this area of law came in 1964 with Hedley Byrne redefining the duty of care principle.
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THE DEVELOPMENT OF LAW Hedley Byrnes Case

Hence, the leading case in this area is Hedley Byrne & Co. Ltd v Heller & Partners Ltd (1964) AC 465. The plaintiff asked the bank to obtain a report on a potential customer with whom the plaintiff intended to do business. The bank replied that the customer was respectably constituted and considered good for ordinary business engagements.
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THE DEVELOPMENT OF LAW Hedley Byrnes Case

The plaintiff in reliance of the banks statement contracted with the customer and suffered a loss of just over 17000 pounds when the customer went into liquidation. The banks statement was headed by the words Confidential. For your private use and without responsibility on the part of the bank and its official.
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THE DEVELOPMENT OF LAW Hedley Byrnes Case

The House of Lords held that a duty of care could be imposed in such a situation where there is a special relationship between the parties relying on the defendants advice.

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THE DEVELOPMENT OF LAW Hedley Byrnes Case

Advice was in connection with specic or particular type of transaction. Defendant could reasonably anticipate claimant would rely on statement.

A Special Relationship
Hedley Byrnes case Mutual Life and Citizens Assurance Co Ltd v Evatt [1971] AC 793 Esso Petroleum v Mardon [1976]

It was reasonable for the claimant to The defendant knew the identity of the claimant a special relationship was established rely on the misstatement

Duty of Care Negligent Misstatement

without seeking independent advice.

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A Voluntary Assumption of Responsibility by the Party Giving the Advice

Hedley Byrnes case In Smith v Eric Bush (1989) a negligent report, prepared by the defendant, had a disclaimer of liability but the court stated that the disclaimer was unreasonable, and, therefore, invalid under the Unfair Contract Terms Act 1977.

Reliance on the Skill and Judgment

The nature of advice sought must be considered as advice. Statements over the telephone or opinions expressed on social or informal occasion cannot give rise to liability. In the case of Chaudhry v Prabhakar [1988] 3 All ER 718, the Court found that all the requirements in Hedley Byrne were satisfied and held that the relationship between the two friends was equivalent to contract save only for the absence of consideration.
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Reasonable to Rely on the Advice

Caparo Industries v Dickman (1990) 1 All ER 568
The House of Lords in denying the plaintiffs claim held that an auditor who audits the accounts of a company in compliance with statutory requirements, owes no duty of care to the actual or potential shareholders. The TESTS

THE POSITION IN MALAYSIA

Dato Seri Au Ba Chi v Malayan United Finance [1989] 3 MLJ 434 Nepline Sdn Bhd v Jones Lang Wootton [1995] 1 CLJ 865

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RECENT DEVELOPMENT
In Commissioners of Customs and Excise v Barclays Bank [2006] 4 All ER 256, the House of Lords recognised that in order for a claim for pure economic loss to succeed, there are three approaches/ useful guidelines to decide whether the defendant owes a duty of care to the plaintiff.
Assumption of responsibility test as stated in Hedley Byrne. The 3-fold test of foreseeability, proximity and fair, just and reasonable The incremental test
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RECENT DEVELOPMENT
The Commissioners of Customs and Excises case has been cited in the case of KGV & Associates Sdn. Bhd. v The Cooperative Central Bank Ltd [2006] 5 MLJ 513 where the Court of Appeal said that the ultimate question whether a duty of care should be in a particular case is essentially fact sensitive.

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RECENT DEVELOPMENT
It must be submitted that the departure from English Law is perhaps completed with these two recent judgments in the cases of:
Majlis Perbandaran Ampang Jaya v Steven Phoa Cheng Loon & Ors (2006) 2 AMR 563, FC Lim Teck Kong v Dr. Abdul Hamid Abdul Rashid & Anor [2006] 2 AMR 108

END OF PURE ECONOMIC LOSS

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