The odyssey of pure economic loss
| Jurisdiction | South Africa |
| 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 probl em of
negligently caused pure economic loss 2 reveal a similar oscillating movement. Perhap s it
is inevitable that judicial progress in the development, or the clarification, of law will be
somewhat piecemeal or episodic, but th is characteristic of the history of the comm on law
is mag nified in the dilemma of negligently caused pure economic loss. One only has to
mention 'negligently caused pure economic loss' to bring a frown of c onfusion to any
delict or tort lawyer's face and a self-righteous smi rk to the contra ct specialist, who will,
all too often, shrug the 'problem' off as arising from an unnec essary attempt by delict
lawyers to colonize the domain of contract.
One might be able to placate our fi ctitious 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 sp eaking, both part of the overarching law of
obligations. However, o ne 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 tribu te 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 th e 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 relati onship 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 'relati onal' or 'indirect' loss — on which see further
(iii) below); (ii) where the pl aintiff is not the owner of th e damaged property but suffers
pure economic l oss in regard to the damaged prop erty by virtue of possessing or ha ving
some other pr oprietary interest in the property (for instance, wh ere the property is held
under a hire purchase agreement or under lease); (i ii) where negligent conduct on the
part of A causes damag e to B's property and, by virtue of this damage to B's p roperty, C
suffers pure economic loss (al so 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 wh ich see (iii) above) and wh ere the defendant may be either a public authority or
private individual.
Category (i) concentrates on the nature of the conduct of th e 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 caus ed; and category (iv) accentuates
not only the nature of the harm and the manner in which the harm occurs but also th e
relationship between the parties.
2000 Acta Juridica 101
(1) Negligent misstatements or misrepresentations
The classic examples of the misstatement/ misrepresentation si tuations are those which
arose in England in Hedley B yrne v Heller 4 and Caparo v Dickman 5 and, in South Africa,
in Administrateur, Natal v Trust Bank van Afrika Bpk 6 Siman & Co Pty Ltd v Barclays
National Bank Ltd, 7 International Ship ping Co (Pty) Ltd v Bentley, 8 Bayer South Africa
(Pty) Ltd v Frost 9 (negligent misrepresentation inducing contract), Standard Chartered
Bank of Canada v Trust Bank van Afrika Bpk 10 and Mukheiber v Raath. 11
On whether liability can, in principle, result from a negl igent misstatement or
misrepresentation causing pure economic l oss, the South African law is clear. In the
Trust Bank 12 case, 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 d elictual liability. The same court, some twelve years later in Bayer
SA, 13 held that a negligent misrep resentation inducing a contract could similarly give
rise to d elictual li ability in principle. The policy limits of such an a ction (rel ying on the
legal duty (unlawfulness) concept, the professional standing of the maker of the
misstatement, the natu re and interpretation of the misstatement, the bounds of th e 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).
11 1999 (3) SA 1065 (A).
12 Note 6.
13 Note 9.
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