Governors of the Peabody Donation

In Dutton v Bagnor Regis Urban District Council (1972), the case clearly indicates that it is different to distinguish between a negligent inspection (an act) and a satisfactory report based on the inspection (a statement). The case did not fit easily under either Hedley v Byrne (1964) or Donoghue v Stevenson (1932), which perhaps explains the courts reasoning. Further erosion of the basic principle that pure economic loss is unrecoverable came as a result of Lord Wilberforce's two part test.

As in Anns v Merton London Borough Council (1978), however because of the availability of the Anns two part test, the so called 'high water mark' was then reached in respect of recovery for a pure economic loss. This was pure economic loss under Anns. Pure economic loss after Anns occurs almost immediately, judges considered that the relaxation of the principle concerning recovery for economic loss had now gone too far. A long line of cases followed in which tried to limit the possibility on the above cases.

Governors of the Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd (1985). Here the cases had often arisen because an action in contract was not available and the reliance test from Junior books (1983) argued. Which followed to the case of Muirhead v Industrial Tank Specialists Ltd (1985), this brought about the argument that costs of repairing defects in property that could lead to a danger to health or safety, approved in Anns, was also gradually rejected. 4

Negligence then developed incrementally, case by case, with a duty of care being established in numerous relationships. Much later in Anns v Merton LBC (1978), Lord Wilberforce developed a two stage test imposing liability where there was sufficient legal proximity between both parties unless there were policy reasons for not doing so. However this two part test was criticised and so the case and the test was overruled in Murphy v Brentwood D C (1990). This case approved a three part test from Caparo v Dickman (1990).

This test had to consist the following: * Were the consequences reasonably foreseeable? * Was there a sufficient relationship of proximity between the parties? and, * Is it fair, just and reasonable in all the circumstances to impose a duty of care? Policy has always been a key consideration in determining liability, making many policy factors to influence judges in deciding whether or not to impose a duty. The law of torts is concerned mainly with compensating for physical damage or personal injury, not for loss that is only economic.

The obvious justification for this stance is that economic loss, or for instance loss of a profit or bargain is more traditionally associated with contract law, and the judges have always been eager to separate out the two. An action for an economic loss caused by a statement was traditionally available in tort, but in the tort of deceit and only in the case of fraudulently made statements. This was seen in Derek v Peek (1889) however, the action for economic loss caused by reliance on a negligently made statement should be available was reaffirmed even more recently, although not without some fundamental agreement.

The precise meaning of 'special relationship' was never really examined in Hedley v Byrne (1964) and so it has become an area for judicial policy making. The original meaning was towards a narrow interpretation that would then only include a relationship where the party giving the advice was in the business of giving advice of the sort in question. However, it has since been suggested that a business or professional relationship might in general give rise to the duty if the claimant is genuinely seeking professional advice.

Howard Marine & Dredging Co Ltd v Ogden & Sons Ltd (1978) – a purely social relationship should not normally give rise to a duty of care, but has done when it has been established that carefully considered advice was being sought from a party with some expertise. In contrast with Chaudhry v Prabhaker (1988), the common relationship where a duty will be identified though are those where valuers or accountants are providing the advice. 6 It is only fair and logical that if there has been no reliance placed on the advice given, then there should be no liability on the defendant for giving it.

It will not be foreseeable reliance if the claimant belongs to a group of potential claimants that is too large (Goodwill v British Pregnancy Advisory Service (1996)). But whenever there is foreseeable reliance on advice given, then there will be a duty of care owed In Smith v Eric S Bush (1990), a building society valuation had identified that chimney breasts had been removed, but the valuer had failed to check whether the brickwork above was properly secured… it eventually collapsed.

There was a duty of care because, as in Yianni v Edwin Evans (1982), even though the contract was between building society and valuer, it was reasonably foreseeable that the purchaser would rely on it. Foreseeable reliance by the party seeking the advice might also prevent an exclusion of liability clause in a contract from operating successfully. Where a duty to act is imposed by statute, a civil action is only usually available to a party when the type of harm suffered was that anticipated by the statute. This was one of the reasons why the action failed in Caparo v Dickman (1990).

However, a duty may apply where the public would generally benefit. It leads to mentioning that as a negligent act, pure economic loss does not allow any other professional to claim under it, apart from solicitors only, (White v Jones (1995)). In the case of Hadley v Baxendale (1854), a mill owner contracted with a carrier to deliver a crankshaft for his mill. The mill was actually not operating at the time because the existing crankshaft was broken. The carrier did not know this when the contract was formed. The carrier was then late with deliver.

The mill owner sued unsuccessfully because the carrier was unaware of the importance of prompt delivery. So therefore, in the essence the test is in two parts, one is measured objectively according to what loss is a natural consequence of the breach. The second is subjective, based on specific knowledge of potential losses in the minds of both parties when the contract is formed. The test remains to this day, although it has been modified on occasions, (Victoria Laundry Ltd v Newman Industries Ltd (1949)), nevertheless the test can cause confusion and be made unnecessarily complex.