The Law of Tort: Contributory Negligence and Pure Economic Loss

This paper discusses the application of the law of tort in two scenarios involving contributory negligence and pure economic loss. It examines the rules of law and landmark cases for each scenario. The first scenario involves an accident that results in physical and psychiatric injuries, while the second scenario involves a negligent statement that causes pure economic loss. The paper analyzes the legal principles of contributory negligence and psychiatric injuries for the first scenario and the strict rules for pure economic loss in the second scenario. The paper concludes by discussing the likelihood of damages and liability in each scenario.

THE LAW OF TORT
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The Law of Tort 1
Introduction
The legal meaning of the word “tort” is a “wrong" or a violation of one’s obligations as
imposed by the law. When someone violates the imposed duties, the other person concerned with
those duties suffers some injuries. Such injuries could be either physical or to the properties. For
a further understanding of the application of the law of tort, this paper will draw from two
scenarios. The first one would be a scenario of an accident that involves Katie, Max, and Rita.
Katie is the driver who causes the accident. Max is the pedestrian who is a victim of the accident.
Max also had closed the road without obeying the traffic lights and also seeing Katie's vehicle
approaching. Rita, an eyewitness, allegedly suffers a nervous breakdown which causes her future
phobia about crossing streets. The second scenario that this paper will examine regards the case
of XYZ Bank and Harry. Harry provides an untrue valuation that XYZ relies on while issuing a
loan to its client, Robbie. Later, the bank suffers loss due to Harry untrue reports.
Scenario 1: Katie, Max and Rita
Issue
This scenario is a combination two main issues; contributory negligence and psychiatric
injuries. Particularly, Katie and Max claims would fall under contributory negligence. Rita issue
would fall under the principles of psychiatric injuries or nervous breakdown.
Rules of Law
For a start, contributory negligence is a major defense against a claim of tort. This
defense generally arises in situations where the plaintiff’s failure to observe reasonable care
contributes to their injuries (Dongen & Verdam, 2016).

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In the past, common law could allow the defense of contributory negligence to defeat a
plaintiff ‘s claim especially where the court found the plaintiff had 100% contributory negligent.
The recent statutory provisions have abolished that principle and they now provide for the
apportionment of damages as per the plaintiff’s degree to of contribution as stated in section 9
(Law Reform [Miscellaneous Provisions] Act , 1965). The section 9 (1) b allows the court to
determine damages considering each party’s negligent contributions to the damages. In other
words, the defense would never fully exonerate the defendant from the claim (Goudkamp, 2015).
A landmark case for this principles is (Podrebersek v Australian Iron and Steel , 1985). The
plaintiff was working as a gas regulator in the defendant’s company. He screwed the gas valve
badly leading to a gas that caused his injuries. The court found the employer 10% guilty of
negligent while the plaintiff had 90% contributory negligent. Also, in (Turkmani v Visvalingam ,
NSWCA 211), the court of appeal found that the claimant had 80% contributory negligent. The
claimant was jogging in a “Don’t Walk” intersection when he was struck by the defendant’s van.
On the part of Rita, the claim falls within the scope of pure psychiatric injuries. While
handling these cases, courts create a distinction between primary and secondary victims. Primary
victims are those who are actual victims the incident while secondary victims are eyewitnesses
and people who arrive at the scene immediately after the incidence (Strong & Williams, 2011). In
a general sense, the defendant owes no duty to the world for preventing people from seing a
shock. Therefore, for a court to allow a secondary victim to claim psychiatric injuries, the
following elements must be available;
There must be a close bond of love and affection between the primary and secondary
victim. There is always a close among spouses, parents, and children. Anyone who is not among
these people must provide a reasonable connection.

The Law of Tort 3
Secondly, the court also requires a geographical closeness to the scene of the incidence or
its aftermath (Mulheron, 2016). Courts require the claimant to be either at present or arrive soon
after the incident. Stories from third parties of television do not substantiate geographical
proximity. In (Janesch v Coffey, 1984) the claimant suffered nervous shock after seing her
husband’s injuries in the hospital. The court awarded her the claimed damages after finding that
there was proximity even though the wife was not at the scene of the accident. Lastly, there
should be a medical proof of psychiatric illness that a claimant alleges to have suffered (Mullis &
Oliphant, 2011). In summary, the South Australian section 53,(1b) of ( Civil Liability Act ,
1936) limits secondary victims claim that for one, the claimant “Is a parent, spouse, domestic
partner or child of a person killed, injured or endangered in the accident.”
Conclusion
Following the cases above, it is very likely that the damages of Max against Katie would
be calculated proportionally. The court would find Katie negligent, but it would also find that
Max contributed to his damages as he should have respected the Red-light warning. For the case
of Rita, the claim would fail since Rita is a secondary victim who has no close tie of love or
affection to Max. Therefore, Rita does not meet the requirements of section 53,(1b) of ( Civil
Liability Act , 1936)
Scenario 2: XYZ Bank and Harry
Issue
The main issue in this case is pure economic loss caused by a negligent statement.
Rules of Law
The general rule that applies to cases of pure economic loss is very strict. Where a
claimant brings a claim where the core of the claim is pure economic loss, courts award very

The Law of Tort 4
limited damages under the tort of negligence (Sabapathy, 2009). However, if the claimant
demonstrates that a contract existed between him and the defendant, then the court will allow the
claim. The law will always dismiss a claim for pure economic loss where there are no physical
injuries, no contracts, and no property damages (Ramello & Porrini, 2011).
The general rule that applies to cases of pure economic loss is very strict. Where a
claimant brings a claim where the core of the claim is pure economic loss, courts award very
limited damages under the tort of negligence. However, if the claimant demonstrates that a
contract existed between him and the defendant, then the court will allow the claim (Ramello &
Porrini, 2011). The law will always dismiss a claim for pure economic loss where there are no
physical injuries, no contracts, and no property damages.
Regarding XYZ Bank and Harry scenario, there are special circumstances where a claim
a court will allow a claim of pure economic loss resulting from misstatement. In such cases, the
claim has to meet the following requirements. For one, the defendant must have sufficient
knowledge that his statement would be used elsewhere to make financial decisions. It is not a
requirement that the defendant knew the person who would use the statement. In (Esanda
Finance Corporation Limited V Peat Marwick Hungerfords, 1997), the plaintiff relied on the
defendant’s audited accounts while offering credit to Excel, a defendant’s client. The accounts
were misstated, and the plaintiff could not recover its loan. The court found that the defendant
owed no duty to the plaintiff as was not negligent as they did not know whether anyone would
use the accounts to issue credit. Secondly, the misstatement should have direct connection to the
claimed transaction. Lastly, the claimant must demonstrate that defendant reasonably expected
him rely on that statement without seeking further advice.

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In (Shaddock V Parramatta City Council, 1981), the case succeeded since all the three
elements were present. The claimant intended to purchase a property within the Councils area of
operation. Shaddock’s solicitor requested the council to provide information regarding the status
of the property in terms of proposals for widening the roads. The defendant carelessly told the
claimant that there was no proposal whereas there was one in fact. The misstatement caused the
claimant a loss. The court found the defendant guilty since it was aware that the claimant would
rely on that information.
The appellants claimed that they had sustained loss by reason of their reliance on
erroneous information supplied to them innocently but negligently by the respondent. The trial
judge found that the respondent had been careless but that it owed no relevant duty of care to the
appellants. This decision was affirmed by the Court of Appeal on appeal to the High Court.
Conclusion
Following the above analysis, it is likely that Harry would be liable for the damages
suffered by XYZ bank due to reliance on Harry’s untrue statement. (Pitts v Hunt , 1990) It is
possible that Harry, a friend to Robbie was aware that Robbie was borrowing some huge money
and hence that is why he needed to lie about the value of his land. Besides, Harry should have
not lied in the direction of Robbie since he knew Robbie who is his friend needed additional
capital. However, it is up to XYZ bank to prove that Harry was aware of Robbie’s plan to use the
wrong statement to acquire capital.
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