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DEFINITIONS
• Pure economic loss (or pure financial loss) is the
PURE Economic loss and actual financial loss suffered by a party, not
causally consequent upon physical injury to the
negligent misstatement plaintiff’s own person or property.
• As a general rule, the Courts have adopted a very
restrictive approach in this area and are reluctant
DEFINITIONS
to provide recovery in most cases.
THE DEVELOPMENT OF LAW AND • Policy factors which include the ‘floodgates’
THE POSITION IN MALAYSIA argument feature prominently in pure economic
loss cases.
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DEFINITIONS THE DEVELOPMENT OF LAW

For example, if the plaintiff’s factory is damaged
• Law on economic loss is actually uncertain and
due to the negligence of the defendant, unsettled.
ordinary tort law would compensate him to • Policy reasoning plays a large role in this approach.
repair his factory while the extra profit he • Taking into consideration this role, the Courts would
would have earned during the period of repair only allow claims where there exists a special
is an item of pure economic loss. relationship between the parties concerned.
• Pure economic loss may be incurred either as a
consequence of a negligent misstatement or a
negligent act, for which different principles need to be
considered.

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THE DEVELOPMENT OF LAW THE DEVELOPMENT OF LAW

Early Cases Early Cases
• CASE 1: Ross v Caunters (1979)3 All ER 580 • CASE 2: Spartan Steel & Alloys Ltd v Martin &
– In this case, it was held that a solicitor failed to Co (Contractors) Ltd (1972)3 All ER 557
warn a testator that a will would not witnessed by – The defendants negligently damaged an electrical
the spouse of a beneficiary. cable as a result of which the supply to the
– As a result, it was considered as a breach in plaintiff’s factory was disrupted for 14 ½ hours.
probate law and therefore the beneficiary was – The factory operated 24 hours a day and required
unable to benefit the will. continuous electric supply to maintain furnace
– She successfully sued the solicitor for her loss. temperature for melting alloys.

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THE DEVELOPMENT OF LAW THE DEVELOPMENT OF LAW

Early Cases – Spartan Steel Early Cases – Spartan Steel
– The plaintiffs suffered three items of damage: – The defendants admitted negligence but disputed
• The melt which was already in the furnace had to be the amount of their liability.
removed because if it solidified it would damage the – Lord Denning observed that it is difficult to explain
furnace. Oxygen was used for this purpose and the
this type of cases in terms of duty and
effect of this on the melt was to reduce it value by 368
pounds remoteness. He said that it is better to consider
• The profit on the above melt would have been 400 the particular relationship in hand, and see
pounds whether or not, as a matter of policy, economic
• If there was interruption of electricity four other melts loss should be recoverable.
could have produced at a profit of 1 767 pounds.

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THE DEVELOPMENT OF LAW THE DEVELOPMENT OF LAW

Early Cases – Spartan Steel Different Approach – No Limitations
• In Dutton v Bognor Regis Urban District Council
His Lordship held that the defendants were liable [1972] 1 QB 373, the local authority inspector
under
negligently approved foundations to a house
(i) For physical damage, under (ii) for economic loss
which it turned out had been built on the site of
truly consequential on the material damage but not
under (iii) because it was economic loss independent an old rubbish tip.
of physical damage. • Damage did not manifest itself until the house
had been sold on by the original purchaser. The
plaintiff Dutton was a subsequent purchaser who
sued both the vendor and the Council.

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THE DEVELOPMENT OF LAW THE DEVELOPMENT OF LAW

Different Approach – No Limitations Different Approach – No Limitations
• The Court of Appeal held that the wide power • CASE 1: Anns v Merton London Borough (1978) AC 728
– It was held in this case that a local authority could owe a
to control building works assumed by the duty of care to the building owner if the defect constituted
Council under the Public Health Act was a present or imminent danger to the health or safety of
the occupants of the buidling.
exercisable for the protection and benefit of
– When the case went to the House of Lords, it was
future owners and occupiers and carried with unanimously decided that a duty of care was owed to the
it a duty at common law to take reasonable owners and occupiers of the houses and Dutton was
followed.
care to see that the bye-laws were complied – The HL decided that the cracks on the wall could be
with. viewed as damage to property and is, thus, recoverable.

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THE DEVELOPMENT OF LAW THE DEVELOPMENT OF LAW

Different Approach – No Limitations Doubts on Earlier Decisions
• CASE 2: Junior Books Ltd v Veitchi Co. Ltd • CASE: Murphy v Brentwood District Council
(1983)1 AC 520 (1990) 3 WLR 414
– It was held that a relationship of proximity – The non-recoverability of pure economic loss was
between the parties was sufficient for the sealed in this case whereby the House of Lords
recoverability of pure economic loss. held that the Council owed no duty of care to the
plaintiff when it approved the plans for the
defective raft foundation.
– This case overruled the decision in Anns.

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THE POSITION IN MALAYSIA THE POSITION IN MALAYSIA

• The High Courts in the cases of Kerajaan • However, the Court of Appeal in the case of Arab-
Malaysia v Cheah Foong Chew [1993] 2 MLJ 439 Malaysian Finance Bhd v Steven Phoa Cheng Loon &
and Teh Khem On v Wu Development Sdn Bhd & Ors (2003) 2 AMR 6, overruled the High Court’s
Ors [1995] 2 MLJ 663 followed the approach in decision in Dr. Abdul Hamid’s case.
Murphy’s case. • On appeal brought by the appellant (the engineers who
were found liable) in Lim Teck Kong v Dr. Abdul Hamid
• In Dr. Abdul Hamid Abdul Rashid & Anor v Jurusan Abdul Rashid & Anor [2006] 2 AMR 108, the Court of
Malaysia Consultants & Ors [1997] 1 AMR 637, Appeal dismissed the appeal and affirmed the decision
the Court held that a claim for pure economic made by the High Court.
loss can be entertained in an action for • The Court did not follow the Court of Appeal’s decision
negligence. in Arab Malaysian Finance Bhd.

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DEFINITIONS
• The tort of negligent misstatement was not
founded until 1964.
• Prior to this claimants had to rely on the law
Definitions
of contract or alternatively use the tort of
The Development of Law deceit.
The Position in Malaysia • Deceit is based on a fraudulent factual
NEGLIGENT MISSTATEMENT misrepresentation, whereas negligent
misstatement covers opinions and factual
statements made through negligence.

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THE DEVELOPMENT OF LAW

DEFINITIONS
Hedley Byrne’s Case
• In the case of Candler v Crane Christmas & Co • Hence, the leading case in this area is Hedley
(1951) 2 KB 164, it was established that any duty Byrne & Co. Ltd v Heller & Partners Ltd (1964)
of care owed on behalf of the accountants who AC 465.
were negligent in giving advice whilst preparing • The plaintiff asked the bank to obtain a report
accounts for the claimants, would give rise to an on a potential customer with whom the
action under the law of contract rather than tort. plaintiff intended to do business.
• The first major development in this area of law • The bank replied that the customer was
came in 1964 with Hedley Byrne redefining the “respectably constituted and considered good
duty of care principle. for ordinary business engagements.”

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THE DEVELOPMENT OF LAW THE DEVELOPMENT OF LAW

Hedley Byrne’s Case Hedley Byrne’s Case
• The plaintiff in reliance of the bank’s The House of Lords held that a
statement contracted with the customer and duty of care could be imposed in
such a situation where there is a
suffered a loss of just over 17000 pounds special relationship between the
when the customer went into liquidation. parties relying on the
• The bank’s statement was headed by the defendant’s advice.

words “Confidential. For your private use and

without responsibility on the part of the bank
and its official”.

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THE DEVELOPMENT OF LAW

A Special Relationship
Hedley Byrne’s Case
Advice was in Defendant could • Hedley Byrne’s case
connection with reasonably
specific or
particular type of
anticipate claimant
would rely on
• Mutual Life and Citizens’ Assurance Co Ltd v
transaction. statement.
Evatt [1971] AC 793
It was reasonable
for the claimant to
• Esso Petroleum v Mardon [1976]
The defendant knew the identity rely on the
of the claimant –
misstatement
a special relationship was
established
Duty of Care without seeking
independent
advice.
Negligent
Misstatement

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A Voluntary Assumption of Responsibility

by the Party Giving the Advice
Reliance on the Skill and Judgment
• Hedley Byrne’s case • The nature of advice sought must be considered
as advice.
• In Smith v Eric Bush (1989) a negligent report, • Statements over the telephone or opinions
prepared by the defendant, had a disclaimer expressed on social or informal occasion cannot
of liability but the court stated that the give rise to liability.
disclaimer was unreasonable, and, therefore, • In the case of Chaudhry v Prabhakar [1988] 3 All
ER 718, the Court found that all the requirements
invalid under the Unfair Contract Terms Act in Hedley Byrne were satisfied and held that the
1977. relationship between the two friends was
equivalent to contract save only for the absence
of consideration.

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Reasonable to Rely on the Advice THE POSITION IN MALAYSIA

• Caparo Industries v Dickman (1990) 1 All ER • Dato Seri Au Ba Chi v Malayan United Finance
568 [1989] 3 MLJ 434
– The House of Lords in denying the plaintiff’s claim • Nepline Sdn Bhd v Jones Lang Wootton [1995]
held that an auditor who audits the accounts of a 1 CLJ 865
company in compliance with statutory
requirements, owes no duty of care to the actual
or potential shareholders.
– The TESTS

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RECENT DEVELOPMENT RECENT DEVELOPMENT

• In Commissioners of Customs and Excise v
Barclays Bank [2006] 4 All ER 256, the House of The Commissioners of Customs
Lords recognised that in order for a claim for pure and Excise’s case has been cited in
economic loss to succeed, there are three the case of KGV & Associates Sdn.
approaches/ useful guidelines to decide whether Bhd. v The Cooperative Central
the defendant owes a duty of care to the plaintiff. Bank Ltd [2006] 5 MLJ 513 where
– Assumption of responsibility test as stated in Hedley the Court of Appeal said that the
Byrne. ultimate question whether a duty
– The 3-fold test of foreseeability, proximity and fair, just of care should be in a particular
and reasonable case is essentially fact sensitive.
– The incremental test

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RECENT DEVELOPMENT
• It must be submitted that the departure from
English Law is perhaps completed with these
two recent judgments in the cases of:
– Majlis Perbandaran Ampang Jaya v Steven Phoa
END OF PURE ECONOMIC LOSS
Cheng Loon & Ors (2006) 2 AMR 563, FC
– Lim Teck Kong v Dr. Abdul Hamid Abdul Rashid &
Anor [2006] 2 AMR 108

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