Esanda Finance v Peat Marwick Hungerfords

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Citation: (1997) 188 CLR 241

This information can be found in the Textbook: Sappideen, Vines, Grant & Watson, Torts: Commentary and Materials (Lawbook Co, 10th ed, 2009), pp. 303-306 [10.20]

Contents

Background facts

  • Plaintiff [Esanda] was lent money to companies associated with a company named Excel, which would indemnify the Plaintiff if the companies were unable to.
  • Allegedly, the Plaintiff entered this agreement based on certifications made by the the Defendant [PMH], who were the auditors of Excel.
  • Excel was unable to provide the indemnities, and the Plaintiff sued the Defendant pure economic losses as a result from negligent words.

Legal issues

Judgment

  • The Plaintiff in this case relied on reasonable foreseeability alone, and did not try to prove a special relationship between it and the Defendant. Since mere foreseeability is not enough in a case of pure economic loss (a special relationship is needed), the Plaintiff fails.
    • "Mere forseeability of harm does not, where the only harm is pure economic loss, give rise to a duty of care[1]."
    • "The reason for this is that a duty of care imposed by reference to the mere foreseeability of harm in the form of financial loss would extend liability in negligence beyond acceptable bounds. Financial loss occurs as the result of legitimate commercial competition, and commercial activity would be stifled if the law were to impose a duty to take care to avoid that loss[2]."
    • Thus, for a duty of law to arise in cases of pure economic loss, the law requires, in addition to the foreseeability of harm, a special relationship between the parties which is described as a relationship of proximity."
  • However, the court does consider other issues of law:
  • Agree with Hedley Byrne & Co Ltd v Heller & Partners Ltd and quoting Mutual Life & Citizens’ Assurance Co Ltd v Evatt (in which Hedley Byrne was adopted in Australia):
    • "Whenever a person gives information or advice to another upon a serious matter (not merely social intercourse) where that person realizes, or ought to realize, that he is being trusted to give the best of his information or advice, the person giving it is under a duty to exercise reasonable care in so doing."
  • Mentions that a 'request for information' is not a condition.
  • Reasoning from Caparo Plc v Dickman[3] - when determining if reliance was reasonable, it should also be noted that the purpose to which the negligent words were said makes a difference.
    • In other words, if the defendant said the negligent words for a different purpose than to induce or advise the plaintiff (i.e, the words were meant for someone else), than it was not reasonable for the plaintiff to rely on them.

References

  1. (1997) 188 CLR 241, 252
  2. (1997) 188 CLR 241, 252
  3. [1990] 2 AC 605
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