The odyssey of pure economic loss

• Jurisdiction: South Africa
• Citation: 2000 Acta Juridica 99
• Published date: 29 May 2019
• Date: 29 May 2019
• Author: Jonathan Burchell
• Pages: 99-132

The odyssey of pure economic loss

2000 Acta Juridica 99

Jonathan Burchell *

University of Cape Town

I Introduction

Bernard Schlink, a Professor of Law at the University of Berlin, in his acclaimed novel

The Reader, writes:

'The Odyssey is the story of motion both purposeful and purposeless, successful and futile.

What else is the history of law.' 1

The approaches of contemporary systems of law to the seemingly intractable problem of

negligently caused pure economic loss 2 reveal a similar oscillating movement. Perhaps it

is inevitable that judicial progress in the development, or the clarification, of law will be

somewhat piecemeal or episodic, but this characteristic of the history of the common law

is magnified in the dilemma of negligently caused pure economic loss. One only has to

mention 'negligently caused pure economic loss' to bring a frown of confusion to any

delict or tort lawyer's face and a self-righteous smirk to the contract specialist, who will,

all too often, shrug the 'problem' off as arising from an unnecessary attempt by delict

lawyers to colonize the domain of contract.

One might be able to placate our fictitious contract specialist with the genuine

Romanistic response that the problem is not really one of turf because the respective

domains of contract and tort are, rightly speaking, both part of the overarching law of

obligations. However, one would still have. to. confront the problem that few systems of

law have yet found a coherent response to what can collectively be called the 'pure

economic loss' cases. I thought it would be a fitting tribute to

* BA LLB (Natal) LLM (Cantab) PhD (Witwatersrand), Professor of Law, University of Cape Town.

2000 Acta Juridica 100

a scholar and jurist of the eminent stature of Professor Robert Feenstra to revisit the

challenging dilemma of negligently caused pure economic loss.

This article will, first of all, attempt to collate the various forms of pure economic loss

predicaments. Secondly, it will sketch the current English and Commonwealth (including

South African) approaches to pure economic loss cases. In the third part, this article will

offer a checklist, based on comparative precedent, which will hopefully provide the law

with a compass to guide it through its many vicissitudes to its own jurisprudential

Ithaca.

II Types of pure economic loss cases

1 Phoenix Books (translation by Carol Brown Janeway) (1998)180. Perhaps one cynical reason why Ulysses was

destined for this frustratingly sporadic form of travel is an hereditary one: some say that he was the son of

Sisyphus (C Kerenyi The Voyages of Ulysses (1966) 253) and it was Sisyphus who was doomed to the

monotonous fate of rolling a heavy boulder to the summit of a hill, only to find that it had rolled down to the

bottom of the hill again.

2 'Pure economic loss' is loss assessable in money terms but not directly connected with physical injury or

damage to property. A distinction is drawn between this type of loss and what is sometimes called 'parasitic'

economic loss where the plaintiff has suffered physical injury or property damage and wishes to recover

attendant economic loss, such as loss of support from a breadwinner or loss of earning capacity, for instance.

This article does not purport to deal with parasitic economic loss or another particular type of economic loss, ie

that caused by unlawful competition or trade interference where, of course, the nature of a free enterprise

economic system may dictate that special market-place factors be considered.

2000 Acta Juridica 99

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The most commonly encountered pure economic loss cases fall into the following broad

categories: 3 (i) negligent misstatements or misrepresentations (ie words rather than

deeds) usually, but not exclusively, in the performance of professional services,

sometimes where there is a contractual relationship between the parties and sometimes

where there is not. In the case of a professional relationship between A and B, breach of

this relationship, by means of words or conduct, might cause harm of an economic

nature to C (sometimes referred to as 'relational' or 'indirect' loss — on which see further

(iii) below); (ii) where the plaintiff is not the owner of the damaged property but suffers

pure economic loss in regard to the damaged property by virtue of possessing or having

some other proprietary interest in the property (for instance, where the property is held

under a hire purchase agreement or under lease); (iii) where negligent conduct on the

part of A causes damage to B's property and, by virtue of this damage to B's property, C

suffers pure economic loss (also another instance of 'indirect' or 'relational' harm) and;

(iv) cases of defective structures or products, sometimes where there is a contractual

relationship between the parties and sometimes where there is not (ie relational harm,

on which see (iii) above) and where the defendant may be either a public authority or

private individual.

Category (i) concentrates on the nature of the conduct of the defendant; category (ii)

focuses on the relationship (or title) of the plaintiff to the property damaged; category

(iii) highlights the manner in which the harm is caused; and category (iv) accentuates

not only the nature of the harm and the manner in which the harm occurs but also the

relationship between the parties.

2000 Acta Juridica 101

(1) Negligent misstatements or misrepresentations

The classic examples of the misstatement/ misrepresentation situations are those which

arose in England in Hedley Byrne v Heller 4and Caparo v Dickman5and, in South Africa,

in Administrateur, Natal v Trust Bank van Afrika Bpk 6Siman & Co Pty Ltd v Barclays

National Bank Ltd, 7International Shipping Co (Pty) Ltd v Bentley, 8Bayer South Africa

(Pty) Ltd v Frost 9(negligent misrepresentation inducing contract), Standard Chartered

Bank of Canada v Trust Bank van Afrika Bpk 10and Mukheiber v Raath. 11

On whether liability can, in principle, result from a negligent misstatement or

misrepresentation causing pure economic loss, the South African law is clear. In the

Trust Bank 12case, putting an end to decades of uncertainty in the lower courts, the

Appellate Division held a negligent misstatement causing pure economic loss can, in

principle, give rise to delictual liability. The same court, some twelve years later in Bayer

SA, 13held that a negligent misrepresentation inducing a contract could similarly give

rise to delictual liability in principle. The policy limits of such an action (relying on the

legal duty (unlawfulness) concept, the professional standing of the maker of the

misstatement, the nature and interpretation of the misstatement, the bounds of the test

of negligence, whether loss to the specific plaintiff is foreseen or foreseeable, problems

3 This categorization, which was referred to by Mc Hugh J in the Australian High court case of Perre v Apand

(1999) 164 ALR 606 at 630 para 96 and La Forest J in Winnipeg Condominium Corp No 36 v Bird Construction

Co 121 DLR (4th) 193 (1995) at 199, is based in part on that of Bruce Feldthusen.

4[1964] AC 465 (HL).

5[1990] 2 AC 605 (HL).

61979 (3) SA 824 (A).

71984 (2) SA 888 (A).

81990 (1) SA 680 (A).

91991 (4) SA 559 (A).

101994 (4) SA 747 (A).

11 1999 (3) SA 1065 (A).

12 Note 6.

13 Note 9.

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