Negligent conduct causing

purely economic loss

 What is purely economic loss?

Loss unconnected to physical damage to

property or injury to person.

Pecuniary loss always recoverable when D by positive

act negligently injures P or damages his or her property
and thereby causes financial loss.

With purely economic loss not connected with physical

damage to property, however, legal policy
considerations have been used by courts to keep scope
of liability within reasonable bounds.
The loss is finite and specific and there are no
policy reasons for denying liability – liability will
be imposed.
The loss is finite and specific but there are
policy reason for denying liability in that
particular situation

The loss is infinite – no liability

Multiplicity of claims & indeterminate liability
Negligent misstatement inducing
contract
Example

P & D are negotiating a contract. During course of

negotiations, D makes certain material representations to P
that induce P to enter into the contract. The representations
made by D at the pre-contractual stage were not made
terms of contract.

But representations were erroneous and the effect of these

erroneous statements is that P suffers financial loss at
post-contractual stage because the contractual deal is
inferior to that which P was led by D’s representations to
believe it would be.

P seeks to sue D in delict for negligent misrepresentation.

(Clearly it is actionable if the misrepresentations are

fraudulent.)
 Approach in South Africa until 1980s
It is unnecessary to allow a delictual action

Main reason: any reasonable business-person would

extract guarantees about the accuracy of material
representations, have them included as contractual
terms, and would thereby be able to sue in contract if the
representations were erroneous.

It was argued that to allow an additional delictual right of

action would lead to an unnecessary proliferation of
actions. The remedy should be in contract.
 Post 1980s cases
Later the SA courts decided there were no compelling
reasons for denying a delictual right of action.

It is unreasonable to expect P to have to have included as

contractual terms every single representation made to him
at the pre-contractual stage. P should rather be able to
expect reasonable care from D in making statements that
would induce P to conclude the deal and cause loss after
contract was entered into.

This approach adopted in Zimbabwean case of Autorama

(Pvt) Ltd v Farm Equipment Auctions 1984 (1) ZLR 162 (H)
 Autorama (Pvt) Ltd v Farm Equipment Auctions 1984 (1)
ZLR 162 (H)
An auctioneer, sold a motor vehicle to P after representing to
P that the owner of the vehicle was a finance company
whereas it was in fact selling it on behalf of the person who
was buying the vehicle under a hire purchase agreement with
the finance company.
Before P could obtain the vehicle he had to pay the balance
owing under the hire-purchase to the finance company. P
claimed damages from D for the amount he had to pay to the
finance company. P argued that the representation by D about
the ownership of the vehicle was material representation in
inducing P to enter into the contract. P alleged that D was
negligent in failing to ascertain the true owner as it was known
to D that persons regularly attempted to fraudulently selling
motor vehicles subject to hire-purchase agreements before
leaving Zimbabwe with the money.
D excepted to the claim on the basis that it disclosed no
actionable claim. The court dismissed the exception.
 Negligent misstatement
causing purely economic loss
Limiting liability for negligent misstatements
Where D makes a negligent misstatement that ends up
causing purely economic loss to P, question is whether D
will be held liable for the loss.
To allay fears of limitless liability apply these tests:
 whether there is a sufficient relationship between the
parties which creates a legal obligation on D not to give
misleading information or advice; and
 whether any policy considerations which require non-
recognition or limitation upon the scope of the duty or
the class of person to whom it is owed or the damages
to which a breach of it may give rise.
 D makes representation directly to P

P considering extending credit facilities to B and P asks

D about B’s credit-worthiness. D negligently informs P
that B is very good credit risk when, with the information
at his disposal, D knew or should have known that B’s
financial position was extremely precarious. Acting on
this information, P extends credit to C and soon
thereafter C goes insolvent and P loses his money.

Here the loss is caused by a negligent misstatement

made directly to P. D is liable for the financial loss.
Wood v Northwood Service Station 1974 (1) RLR
49 (G)
P, a customer at garage, asked a garage to value his car.
The garage negligently told him that the engine was a
write off and it would be uneconomic to repair it. Acting
on this erroneous advice, P sold vehicle for small price
but the buyer, after carrying out minor repairs, was able
to sell it for a much bigger price than what he had paid.
The court held the garage liable for loss suffered. The
advice had been required for a serious purpose and the
relationship between the parties was such that garage
had a legal duty to avoid giving erroneous advice.
P sold for $800 because of wrong evaluation. Court
assessed actual value of car at time of sale at $ 1600
(taking into account actual cost of the necessary
repairs). Therefore P was entitled to $800 from garage.
Standbic Bank Zimbabwe Ltd 2007 (1) ZLR 398
(H)

A bank had opened an account for customer on basis of

a recommendation by D. That customer then defrauded
bank. The bank then sued D for the loss it had
sustained.

It was held that there was no legal relationship between

the parties that created an obligation on D to exercise a
legal duty in relation to P not to provide misleading
information.

In any event, the bank was at fault in sustaining its own

loss by not carrying out its own checks.
Mukheiber v Raath and Another 1999 (3) SA 1065
(SCA)

A doctor negligently misrepresented that he had

sterilized a woman, P. She then stopped using
contraception when having sexual intercourse with her
husband. She became pregnant and gave birth to a child.
The doctor was sued in delict.

The Court found that there were no policy reasons for not
holding the doctor liable. His liability was however
limited to that resting on parents to maintain child and
his liability would lapse when the child was reasonably
able to support himself.
Masiya & Anor v Sadomba & Anor HH-28-12
A property consultant was employed by a firm of estate
agents. The property consultant introduced a purported
seller of a piece of land to the estate agents. The Ps then
sought to buy piece of land through the estate agent. The
Ps paid the money for the sale to the estate agent which
then released the money to the purported seller. It then
turned out that the seller was not the owner of the land.
Ps then sued the estate agents and the property consultant
for the financial loss they had suffered.
The estate agent was held liable for financial loss. He had
assured Ps that he was a professional who would protect
their interests. The relationship with the Ps was such as to
create a legal obligation to act with care. He had breached
duty of care and was liable to Ps. The estate agent was
vicariously liable for negligence of the property consultant
who was their employee.
Murimba & Anor v Law Organization (Pvt) Ltd & Ors HH-
265-10
An estate agent was engaged by a person to sell a certain
stand in Harare. The purported seller did not own the stand
and acted fraudulently in claiming to be the owner.
The estate agent advertised the sale of the stand, giving
details of its location. Ps visited the stand and then went to
the estate agent and entered into an agreement to buy the
stand. Having paid the transfer fees, Ps then learned that
the stand belonged to another person. The fraudster could
not be located, so Ps sued the estate agent for financial
loss sustained.
The court decided that the estate agent not liable. There
was no suggestion that the estate agent was a party to
fraud. Whilst the principal is liable for the fraudulent
misrepresentations of his agent, the agent is not liable for
the fraudulent misrepresentations of his principal.
Causing purely economic
loss otherwise than by
negligent misstatements
Policy considerations to be taken into account in such
cases set out in the case of Music Room (Pvt) Ltd v ANZ
Grindlays Bank Zimbabwe Ltd 1995 (2) ZLR 167 (H) at 168.
These include:
 whether loss is finite;
 whether number of potential claimants is limited and
identifiable;
 whether the success of the action will result in a
multitudinous train of claims for incalculable loss;
 whether D is to be regarded as possessing skills and
special responsibility in the particular commercial
activity in which he is engaged;
 the desirability of maintaining long established
principles of law which are currently being acted upon;
 whether there is need to place the ground of action
within the extended scope of the lex Aquilia;
 the conduct of P.
 No multiplicity of actions
Zimbabwe Banking Corp v Pyramid Motor Corp 1985 (1)
ZLR 358 (S)
Single cheque.
A cheque endorsed “account payee only & not
negotiable” was stolen. A person other the payee
presented the cheque to the collecting bank for payment
and the bank paid out to this person despite the
restrictive endorsement. P suffered purely economic loss
as a result.

The court held that the bank was liable to P. There was no
danger of opening the Pandora’s Box. The parties were
limited by the endorsement and there would not be
multiplicity of claims. The recognition of this duty would
not wreak havoc in the commercial world.
Tobacco Finance v Zimnat Insurance 1982 (1) ZLR
47 (H)
A farmer’s wheat crop was insured by D against loss or
damage. The crop was damaged by hail.
A company had advanced loans to farmer and had
registered a stop order under legislation. It then ceded its
claims against the farmer to P.
D insurance company negligently paid insurance directly
to farmer instead of to Registrar of Stop Orders as
required under the legislation. It failed to check whether a
stop order had been so registered.
The farmer disappeared with the money. P, whose loan to
farmer was secured by the insured property, suffered
economic loss as it could not recover on the loans.
D was held liable to P. The loss was finite and specific and
there was no public policy reason for denying P damages.
Coronation Brick v Strachan Construction
1982 (4) SA 371 (D)
D negligently severed a power cable to P’s brickworks. D
knew that this cable supplied P’s brickworks. P suffered
loss of profits as was it unable to make bricks whilst the
power was off.

D was held liable. The loss was specific and finite. D was
liable.

But it would have been different if D had a severed

power cable supplying electricity to an entire factory
area with many factories. Multiplicity of claims etc
In Greek mythology, Pandora was the first woman on Earth. Zeus ordered the
god of craftsmanship to create her using water and earth. The gods endowed
her with many gifts: Athena clothed her, Aphrodite gave her beauty,
and Hermes gave her speech.
When Prometheus stole fire from heaven, Zeus took vengeance by presenting
Pandora to Prometheus' brother. Pandora was given a beautiful jar – with
instructions not to open it under any circumstance. Impelled by her curiosity
(given to her by the gods), Pandora opened it, and all the evil contained
therein escaped and spread over the earth. She hastened to close the
container, but the whole contents had escaped, except for one thing that lay
at the bottom – the Spirit of Hope. Pandora, deeply saddened by what she
had done, feared she would have to face Zeus' wrath, since she had failed her
duty; however, Zeus did not punish Pandora, because he knew this would
happen.
 Would be multiplicity of claims
Weller & Co v Foot & Mouth Disease Institute
[1965] 3 All ER 560

D negligently allowed a cattle virus to escape from its

Institute and this led to imposition of a quarantine of
cattle in the surrounding area. P, who was a cattle
auctioneer, suffered economic loss as it was not able to
conduct any cattle auctions.

The court decided that the Institute was not liable

because if liability were to be imposed upon it, it would
open the floodgates to a multiplicity of actions from
such persons as butchers, dealers in dairy products,
suppliers of cattle feeds, etc;
Shell & BP (Pvt) Ltd v Osborne Panama 1980 (3)
SA 653 (D)

D negligently damaged a buoy (an anchored float on

water) that was used by ships transporting oil to offload
the oil. This led to number of ships being delayed in
offloading of their oil. P was one of parties who suffered
such loss because was liable to the charterer for
damages for any delay in delivering the oil.

Court held D should not be held liable as P was merely

one of an unascertained class of potential sufferers and
if was held liable to P there could be a possible
multiplicity of claims.
Franschoekse Wynkelder (Ko-operatief) Bpk v
SAR& H 1981 (3) SA 36 (C)

D sprayed vegetation along a railway line with

poisonous weedkiller. The soil adjacent to farms
growing grape vines was contaminated and the farms
were not able to supply grapes to the P’s wine making
co-operative. The Co-operative claimed damages for its
loss in not being able to make wine due to lack of
supply of grapes.

The Court held there was no liability. Even if D was

negligent there was no special relationship between D
and P and to impose liability would open up floodgates
to indeterminate liability.
Music Room (Pvt) Ltd v ANZ Grindlays Bank
Zimbabwe Ltd 1995 (2) ZLR 167 (H)
An employee of a bank negligently handed over a cheque
book with several cheques belonging to one of its
customers, P, to a person falsely claiming to be the
messenger of the customer. The employee did not ask for
proof of identity.

The fraudster then approached a store to buy goods with

a cheque from the cheqebook. They were told that only a
bank certified cheque would be accepted. The person
returned with a forged cheque from the chequebook which
was endorsed on the back with a forged bank certification.

The cheque was then dishonoured by Grindlays Bank. The

stolen goods from the store were not recovered.
The Bank not liable for the financial loss of the store as it
would not be in interests of society to impose legal duty
of care on bank in respect of economic loss suffered by
P. Both parties had been victims of fraud.

Liability would be indeterminate as there could be a

series of fraudulent cheques being used and it would
open the floodgates to a multiplicity of actions if liability
were to be imposed.

But the owner of the cheque book had gone to the bank
and found that the cheque book had been handed over to
someone else. Two cheques had already been cashed.
The bank had then published in a national newspaper
warning members of the public not to accept cheques
from the cheque book.