Then the question arises, what does the future hold for delictual liability for pure economic loss? In general terms, "Pure economic loss" is not considered an actionable injury in delict, that is to say if a purchased item is faulty, but the fault cases no further damage except to the item itself, there is no action in delict (there may however be a claim in contract), as such the duty of care in such cases is found not to have a duty of care for such claims. This proposition will be explored by examining two recent Supreme Court of Appeal judgements in the cases of Country Cloud Trading CC v MEC, Department of Infrastructure Development and Minister for Safety and Security v Scott & Another delivered in March and May this year. What is pure economic loss? In the Trust Bank case, when extending liability for pure economic loss, the court realised the danger of ‘limitless liability’ inherent in the extension and concluded that the ‘instrument of control to prevent limitless liability’ is the delictual element of wrongfulness. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 is an English tort law case on pure economic loss, resulting from a negligent misrepresentation. It is evident from the cases discussed above that in order for there to be liability for pure financial loss in delict, there has to be a special relationship between the defendant and plaintiff. This included a claim by Scott's company for loss of contractual profits as a result for being arrested and then a certain contract being cancelled. Therefore the approach taken by our courts in interpreting delictual liability for pure economic loss to an insured has implications to the formulation and extent of the cover both for the insured and the insurer. This is the so-called Hedley Byrne principle following the case ofHedley Byrne & Co Ltd v Heller & Partners Ltd [1964] … Attorney advertising. In the context of a delict, claims for pure economic (financial) loss, with no accompanying harm to an individual's person or property, are only available in limited circumstances. In cementing his findings, JA Theron held that "to have damages imposed on the police for loss of contractual profits in relation to a contract they were unaware of and in circumstances where the arrest of Scott was effected on the basis of him having been the aggressor in a drunken brawl, and where the justification for the arrest can rightly be said to have been merely technical in error, is to cast the net too wide and to land the police with liability for loss that it too remote". Generally, pure economic loss is aptly referred to as financial loss. Prior to the decision, the notion that a party may owe another a duty of care for statements made in reliance had been rejected,[1] with the only remedy for such losses being in contract law. The court was asked to determine liability in delict for so called pure economic loss resulting from a negligent design by structural engineers. As such the law places significant limits on the recovery of pure economic losses. In 1963, the House of Lords held that a claim for pure economic loss could be permitted if the loss was a result of things the defendant had said or information the defendant had provided. Preview text Take your favorite fandoms with you and never miss a beat. Before dealing with policy considerations, Brand JA dealt with the significance of wrongfulness as one of the elements of delict that has to be proven for the extension of delictual liability for pure economic loss. The court was asked to determine liability in delict for so called pure economic loss resulting from a negligent design by structural engineers. It appears from the two recent cases that our courts have adopted a somewhat cautious approach bordering on restriction to delictual liability for pure economic loss, and these cases seem to have joined the long line of South African judgments grappling with this notion in our law. Pure economic loss arises where a third party suffers a loss without there being injury or damage. Pure economic loss arises where a third party suffers a loss without there being injury or damage. In order to comply with its obligations under the construction contract Ilima had borrowed R12 million from Country Cloud (plaintiff). In applying the boni mores. Hedley Byrne and Co v Heller and Partners, https://scottishlaw.fandom.com/wiki/Economic_loss?oldid=4319. The department, however, cancelled the Ilima contract because of the eventual liquidation of Ilima. pure economic loss not recoverable under delict. A claim for pure economic loss is based on the negligence of the insured and often happens when the insured denied a third party access to something that the third party utilised to generate an income, or breach of an undertaking that caused financial loss. For it to be a delict there needs to be a factor beyond the mere occurrence of the loss and that its occurrence was foreseeable (Murphy v Brentwood). This was on the basis that the defenders had a contract to lay the floor, knew that Junior would be relying on the floor, that their skills were being relied upon by the per suers, and that they must have known that this was the case, and that any defects would be at some time corrected at a financial cost. No, it is not generally delict. There is no presumed general duty to avoid causing economic loss to another: it must be shown that such a duty was actually and deliberately assumed. In deciding the issue, the court delved in detail into the historical jurisprudence for extension of delictual liability by examining decided cases. South African law approaches the matter in a more cautious way, as I have indicated and does not extend the scope of Aquilian action to new situations unless there are positive policy considerations which favour such an extension.". In Lillicrap the court concluded that delictual action does not fit comfortably in a setting where professional services are rendered pursuant to a contract. In an article entitled “The contribution of Louis Harms in the sphere of Aquilian liability for pure economic loss” published in Essays in honour of Louis Harms 2013 THRHR 57–69, Brand JA takes issue with our statement in Neethling and Potgieter Neethling-Potgieter-Visser Law of delict (2010) 78 that “since Telematrix [ (Pty) Ltd v Advertising Standards Authority SA 2006 1 SA 461 (SCA)] the Supreme Court of Appeal … Suggested Citation: Suggested Citation. This means that shareholders are not entitled to recover any such losses. In essence, it is a loss that is purely financial. Then Judge Brand went on to deal with the policy considerations militating against the imposition of an extension to delictual liability in the matter. Keywords: delict, pure economic loss, wrongfulness, unlawfulness. Whether to extend delictual liability for pure economic loss has been a thorny issue for our courts since the landmark judgement of Administrator, Natal v Trust Bank van Afrika. In Henderson v Merrett Syndicates Ltd it was held that where a person voluntarily assumes responsibility for the economic interest of another, knowing that the other party is relying upon it, then the duty of care exists. © 2020 Hogan Lovells. Most importantly, the element of wrongfulness needs to be established in these type of cases. He stated that "in the case of pure economic loss, wrongfulness performs the function of a safety valve, a control measure, a long stop which enables the court to curb liability where despite the presence of all other elements of the Aquilian action, right minded people will regard the imposition of liability as untenable". Prior results do not guarantee a similar outcome. Ebotswana (Pty) Ltd v Sentech (Pty) Ltd (November 30, 2014). It is apparent that our courts have consistently adopted a cautious approach and rightly so having regard to the facts of each particular case weighed against policy considerations. Economic loss is a term of art which refers to financial loss and damage suffered by a person which is seen only on a balance sheet and not as physical injury to person or property. … The court was called upon to consider the imposition of delictual liability in circumstances that had never been imposed before, namely, where a stranger to a contract has suffered economic loss as a result of the intentional repudiation of the contract by one of the contracting parties. Summary: Delict — wrongfulness — pure economic loss — intentional interference with contractual relations — relevance of intention in wrongfulness enquiry — norm of state accountability — vulnerability to risk — existing contractual relations 2 To quote the essence of Judge Grosskopf’s judgement: "I do not consider that policy considerations require that delictual liability be imposed for the negligent breach of a contract of professional employment of the sort with which we are here concerned. Topics will be discussed in a comparative, historical and/or theoretical context. Whilst the work was defective, it had caused no other harm, and thus seemed to come under the area of pure economic loss (the cost to correct the floor). As established in cases like Murphy v Brentwood district council, it is established where A performs a contract with B to a substandard level (such as say, laying foundation) and B sells the property on to C, C has no claim to A for the pure economic loss. Cram.com makes it easy to get the grade you want! Recovery for pure economic loss in English law, arising from negligence, has traditionally been limited. In the final analysis, the court took into account two policy considerations that weighed against the imposition of delictual liability. In dismissing the claim for pure economic loss, JA Theron shared the sentiments expressed by JA Brand in Country Cloud in that imposition of liability on the Minister will have unmanageable consequences as it will open the door for indeterminable liability and it "would indeed be untenable to right minded people to hold the Minister liable to Scottco in the circumstances of this matter". This can take the form of lost profits, the cost of replacing or repairing a defective building, or the defective item itself. The general rule is that a defendant does not owe any duty of care to a claimant not to cause pure economic loss. PURE ECONOMIC LOSS Aquilian action is in principle available to claim damages for pure economic loss. Obviously for a plaintiff to successfully prove a delictual action, the elements of delict should be proven. The House of Lords furthered this by saying a person can make a claim for pure economic loss as a result of negligent misstatements – providing there is a special relationship between the parties involved. The appellant’s cause of action was founded in delict and was for pure economic loss. They are generally not recoverable in negligence. Is pure economic loss a delict? The court stated that there was no reason to extend the Aquilian remedy to rescue a plaintiff who was in a position to avoid the risk by contractual means, but failed to do so. Briefly, the facts were as follows: The department (defendant) had contracted with a third party (Ilima) for the latter to complete a hospital. financial damage suffered as the result of the negligent act of another party which is not accompanied by any physical damage to a person or property The second factor was non-vulnerability, "that Country Cloud could have taken alternative steps to recover its loss, for example, by claiming repayment from Ilima in terms of the loan contract or taking cession of Ilima's claim against the department". Economic loss generally refers to financial detriment that can be seen on a balance sheet but not physically. This is determined by reference to certain policy factors, the history of which will be dealt with below. If a claimant suffers personal injury or damage to his property this may lead to economic losses, such as loss of income or cost of hiring a substitute, such losses are categorised as consequential economic loss. 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