Understanding Negligence and Pure Economic Loss in Enterprise Law

This article explains the concept of negligence and pure economic loss in enterprise law. It discusses the elements of negligence, including duty of care, breach of duty, causation, and remoteness of damage, with case examples. It also explains the recovery of economic loss arising out of negligent misstatement, as established in the Hedley Byrne v Heller case.

Running Head: ENTERPRISE LAW
ENTERPRISE LAW
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Author Note

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Issue:
The issue that has been identified in the given scenario is whether Kimberley and Charles can
sue Elle for Negligence.
Rule
The law of Negligence ad been established in the remarkable case of Donoghue v
Stevenson [1932] AC 562. In this case Lord Atkin held that a person is required to take
reasonable care to avoid acts or omissions which are likely to cause any harm to the
neighbour of such person. This decision became a remarkable one and made provisions for
claiming damages for injuries or economic losses sustained by either of the parties due to the
breach of duty of care of the other party. Negligence can be described as a legal wrong in
which one of the parties sustains physical or economic damages at the hands of the other
party, due to the failure of the latter party to take due care so as to avoid what may be
perceived as a potential risk to a reasonable person. The judgment of this case enlisted the
elements that are essential to prove negligence. Such elements are:
 Duty of care of the defendant towards the claimant
 Breach of such duty of care
 Causation of damage sustained by the plaintiff
 Remoteness of such damage
Duty of care
This can be regarded as the first and the foremost element in proving Negligence. For
a party claiming damages due to the Negligent actions of the Other party he must first
establish that the defendant had a duty of care to him. Such Duty of care is assessed by the
Caparo test as established in the remarkable Caparo Industries PLC v Dickman [1990]

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UKHL 2. The Caparo test can be described as a threefold test in which the following are
taken into consideration:
 Whether the harm that was caused by the Negligent actions of the defendant was
reasonably foreseeable
 If a reasonable relationship of proximity existed between the parties
 Is it reasonable and fair to impose the duty of care on the defendant.
Further it has been provided in the case Hackinshaw v. Shaw. (1984) 56 A.L.R. 417;that an
affirmative duty would be imposed on the person who is the occupier of the premises that to
take reasonable care for the purpose of ensuring that the premises is safe to those who enter
them.
Breach of Duty of care
Breach of the duty of care is the second important essential for establishing Negligence on
the part of the Defendant. The Objective test as established in the case Vaughan v
Menlove (1837) 3 Bing. N.C. 467 is applied for the purpose of assessing whether the
defendant breached his duty of care. The objective test takes into consideration the following
factors:
 Seriousness of the harm
 How likely was the harm to be caused
 Cost to be incurred by the Defendant to prevent the Harm
 Utility of the Defendant’s conduct
Causation
It I to be mentioned that a claimant is only entitled to claim damages from the
defendant if it is established that that the harm caused to the defendant was a direct cause of

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the defendant’s negligent actions. The courts apply the ‘But For’ test as established in the
case Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428 to assess the causation of
the damage. The “But For” test takes into consideration whether the damage would have been
caused to the plaintiff had it not been for the negligent acts or omissions of the defendant. If it
is assessed that the plaintiff regardless of the omissions or acts of the defendant would have
incurred the losses or sustained the damage, then the plaintiff will not be entitled to claim
damages.
Remoteness of Damage
The damage sustained by the plaintiff must not have been too remote to the defendant. As
held in the notable case Wagon Mound no1 [1961] AC 388 a defendant is personally liable
for the losses if if such loss was of a foreseeable kind. The legal principle of remoteness aims
to restrict the liability of the defendant.
Application
It has been provided through the facts of the case that Kimberly, a guest of the Bed and
Breakfast house and Charles, a passer-by was injured by the damaged shutters of the House.
Thus to assess whether Elle can be held personally liable for the damages sustained by the
aforementioned parties, it is important to assess whether Elle owed a duty of care to the
aforementioned parties. This can be assessed by the application of the Caparo test. It is
evident in this scenario that any reasonable person would have foreseen the damage likely to
be sustained by any visitor of the House due to the broken shutters. A reasonable relationship
of proximity existed between the aforementioned parties. Kimberley was a guest and Charles
was a visitor. It has been provided in the case Hackinshaw v. Shawthat an occupier has a
duty to take reasonable care to ensure that the premises is safe to anyone who enters it. And
lastly it is reasonable to impose the duty on Elle as it was her duty to fix the shutters.

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Elle breached her duty of care. This can be substantiated by the application of the objective
test. Elle, in this case did not meet the standard of a reasonable person while discharging her
duties as any reasonable person would have fixed the shutters so s to avoid causing harm to
any visitor.
The damage sustained by the aforementioned parties was a direct consequence of the
negligent act of Elle. It can be stated that they would have not sustained the damages had it
not been for the negligent act of keep the broken shutters installed in the premises.
Further, it can be said that the damage caused to the parties was not too remote as any
reasonable person would have clearly foreseen such damage.
Thus, all the elements of Negligence are established in this case and therefore Kimberley and
Charles can sue Elle and claim damages for the injuries sustained by the same. .
Conclusion
Thus to conclude it can be said that Kimberley and Charles can sue Elle for negligence.
Part B
Issue
The issue that has been identified in the given scenario is whether John had been owed a duty
of care to avoid the pure economic loss faced by him and if so by whom
Rule
Pure economic loss can be described as the damage sustained by an individual which is
economic in nature and which is not accompanied by any damage to person or property. The
Hedley Byrne v Heller case is the authority on the recovery of economic loss, whicharises
out of negligent misstatement.

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It was held in the aforementioned case that a negligent misstatement on the part of a party
might give rise to an action for damages for the pure economic loss faced by the other party.
It was further held that a party possessing the special skill or knowledge is required to know
that such party has a duty of care to the other party who relies on the information or advice
provided by the former party due to the skill and knowledge possessed by him. The case
Hedley Byrne & Co v Heller & Partners had been accepted and applied in the Australian
remarkable case Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 by
the High Court of Australia. However, in the latter case the justice Barwick CJ had given the
judgment which deviated from the English concept of the principle of negligent misstatement
by determining that a special relationship does not mandate the speaker to possess any
specialised skill or knowledge. This decision was initially reversed however, the High court’s
decision in the case San Sebastian Pty Ltd v Minister Administering the Environmental
Planning and Assessment Act 1979 (NSW) (1988) 162 CLR 340 reinstated the decision of
the former case.
Application
As provided in the facts of the case it can be said that Jacob had consulted Rose and Geoff to
adivise him on his decision of purchasing the small retail clothing called ‘Sport and Surf’ in
Corulla. Rose owned a hair dressing salon in Cornulla and Geoff was a business broker who
specialized in matching prospective buyers and sellers in the Hotel sector. Both of the them
had been given the books of the Business as prepared by Water Accounting services, the
usual accountants of the business. The profit made by the business had been misrepresented
in the books of the business. Water Accounting services represented the profits of the
business to be 120,000 dollars where as in reality it was only 12,000 dollars. Geoff advised
Jacob to purchase the business relying on the misstatement. By relying on such misstatement
Jacob Purchased the business for 250,000 dollars. Therefore in this case it can be stated in

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accordance with the decision of the Hedley Byrne & Co v Heller & Partners and Mutual Life
& Citizens’ Assurance Co Ltd v Evatt that Water Accounting services had a duty of care
towards Jacob. They breached such duty by misstating the fats and therefore Jacob is entitled
to claim damages from Water Accounting services.
Conclusion
Thus to conclude, it can be stated Water Accounting Services owed a duty of care to Jacob.

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Reference List:
Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
Caparo Industries PLC v Dickman [1990] UKHL 2.
Donoghue v Stevenson [1932] AC 562
Hackinshaw v. Shaw. (1984) 56 A.L.R. 417;
Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465
Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556
San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment
Act 1979 (NSW) (1988) 162 CLR 340
Vaughan v Menlove (1837) 3 Bing. N.C. 467
Wagon Mound no1 [1961] AC 388