2. Economic Loss30

Much ink has been spent in the common law world on the vexed question of pure economic loss.³¹ Administrative liability appears prominently in (p.193) this debate,³² reflecting perhaps the significant state regulation of economic activities. The English courts are very reluctant to allow recovery of financial loss which is unconnected with physical damage to the claimant's person or property.³³ On the other hand, the position in French administrative law initially strikes one as completely different. There is no blanket aversion to the recovery of economic loss, and this issue has largely failed to exercise the minds of academics.³⁴ But, once one delves into the rich French jurisprudence, it becomes apparent that effective control devices are present.

Initially, the basic attitudes of the two systems to economic loss will be examined. Signs of convergence will be presented thereafter.

2.1. Contrasting Stances Regarding Pure Economic Loss

2.1.1. English Law

In the tort of negligence, the English courts are generally reluctant to allow recovery of financial loss which is unconnected with physical damage to the claimant's person or property.³⁵ However, the mere fact that the damage concerned is purely economic does not, by itself, preclude an action. The major exception to the wariness of the judiciary concerning claims in respect of purely financial loss is the rule laid down in Hedley Byrne & Co Ltd v Heller & Partners.³⁶

The rule in the Hedley Byrne case allows claimants to recover damages for economic loss caused by negligent misstatement. A duty to take reasonable care to avoid inflicting economic loss may arise where there is a ‘special relationship’ between the parties. The defendant must have voluntarily assumed responsibility towards the claimant who has acted in reasonable reliance upon the statement.³⁷ Moreover, the defendant must know that the statement would be communicated to, and acted upon, by the claimant for a specific purpose.³⁸ It has been asserted that once the foregoing has been shown, the claimant is thus absolved from showing (p.194) that it is ‘just, fair, and reasonable’ to impose liability.³⁹ But this has not always been borne out in the cases.⁴⁰ The Hedley Byrne principle is not restricted to mere negligent statement-making. It now extends to scenarios where the defendant undertakes to perform a task or service for the claimant.⁴¹

The information-giving function of many public bodies makes them vulnerable to actions based upon the Hedley Byrne rule.⁴² The law reports do provide examples of successful actions in respect of economic harm caused by wayward representations. In Culford Metal Industries Ltd v Export Credits Guarantee Department, damages were recovered by a company from a government department which had wrongly advised it that it was covered by export credit insurance against default by a foreign firm.⁴³ In Welton v North Cornwall District Council, the defendant council was found liable for negligent misstatement when an environmental health officer required the owner of food premises to undertake works which were not necessary.⁴⁴

And yet, despite these examples, the prevailing judicial approach to such claims is protective of public authorities. The normal policy concerns militating against public authority negligence liability,⁴⁵ such as the fear of encouraging defensive practices and the existence of alternative remedies, have played a significant part in discouraging the judiciary from recognizing liability for economic loss caused by misstatement or misrepresentation.⁴⁶ Thus, in the planning sphere it is rare for the courts to recognize a duty to take care in the giving of planning advice.⁴⁷ In Tidman v Reading Borough Council, liability in negligence was ruled out for the giving of informal planning advice by a local authority.⁴⁸ It was held that (p.195) a duty of care could arise only in the exceptional circumstances of a council responding to formally requested advice with knowledge of the serious implications.⁴⁹ In respect of health and safety protection, the aforementioned case of Welton must now be read in the light of Harris v Evans, where the Court of Appeal held that a health and safety inspector owed no duty of care to the owner of a bungee-jumping business, when the inspector had given erroneous advice to a local authority about the safety requirements needed for a bungee-jumping crane which prejudiced the claimant's business.⁵⁰

Similar considerations have thwarted actions against public bodies in scenarios outside the confines of negligent representations. The English courts have generally been very wary of imposing liability in respect of claims concerning: regulators in the economic sphere,⁵¹ safety inspection and certification,⁵² social welfare payments,⁵³ planning regulation,⁵⁴ and decisions of licensing authorities.⁵⁵

Torts other than negligence are of limited use in gaining damages for economic harm caused by a public body. The restrictive approach in negligence informs private law claims for breach of statutory duty. In one recent case, it was asserted that where purely economic loss is concerned, there is a strong indication that Parliament did not intend to confer a right of recovery.⁵⁶

On the other hand, the tort of misfeasance in public office could allow for the recovery of economic loss caused by public servants.⁵⁷ The broadening of the mental elements of this tort may help to make this a more attractive proposition for those who are attempting to recover economic loss for administrative wrongdoing.⁵⁸ Finally, the European angle should be mentioned. We have seen that public bodies can be held liable in damages for breaches of Community law.⁵⁹ This represents an (p.196) opening for recovery of pure economic loss,⁶⁰ with a possible spill-over into areas of tort liability which do not have a Community law dimension.⁶¹