Pure economic loss claims

Abstract

The first recognized source of economic loss involved the reliance upon comments and representations which were negligently given. In the English case of Hedley Byrne & Co. v. Heller & Partners Ltd., an advertising agency requested its bank (A) to inquire into the credit worthiness of a third party client. This bank called the client's bankers (B) for this information to be freely given. They simply asked whether this client would be a good credit risk for [Symbol Not Transcribed]100,000. Bank B replied that the client was a "respectably constituted company and considered good for its normal business requirements". The advertising agency went ahead and extended the credit to the client. These references turned out to be inaccurate, and the agency lost over [Symbol Not Transcribed]17,000 as a result of the client's default.

Since this information was provided by B under a disclaimer ("For your private use and without responsibility on the part of the bank or its officials"), B was found not liable to the agency. The Hedley Byrne rule means that there may be legal liability for gratuitous statements, negligently made, which are relied upon and cause economic injury to another. The Supreme Court of Canada has adopted the Hedley Byrne rule many times, including recently in Queen v. Cognos where a judge affirmed that it is "now an established principle of Canadian tort law".

Users of defective or dangerous products or buildings may be injured in a purely economic way. In a recent Supreme Court of Canada decision, called Winnipeg Condominium v. Bird Construction, a building developed a defect with its exterior cladding. Pieces fell to the ground. A subsequent purchaser replaced the cladding and sued the builder for the considerable costs of doing so, owing to their negligence. A unanimous Supreme Court held that a duty of care in tort law arises between a builder and a subsequent user (e.g. owner and occupant) of the building, where it is reasonably foreseeable that a construction defect presented a danger to those users. The buyer was allowed to recover its pure economic losses.