Duty of care — practice questions

Issue: Does Leon owe the bank a duty in negligence for pure economic loss from a negligent audit?

Established category? No simple manufacturer/road-user duty. This is a novel situation for pure economic loss, so we must apply Caparo v Dickman [1990]:

1. Foreseeability: If the audit was known to be for lending decisions, financial loss to a lender is reasonably foreseeable when accounts are misstated.
2. Proximity: In Caparo itself, auditors owed a duty to shareholders as a body, not individual investors or outside lenders. For proximity to exist here, there would need to be a 'special relationship' (Hedley Byrne). Did Leon know the audit was specifically for the bank's loan decision and that the bank would rely on it without further enquiry? If the audit was for general purposes, proximity is weak and the bank is part of an indeterminate class of potential users.
3. Fair, just and reasonable: Courts are reluctant to impose duties for pure economic loss due to the policy risk of 'indeterminate liability to an indeterminate class for an indeterminate time'. Policy favours no duty unless a specific assumption of responsibility can be shown.

Conclusion: Following Caparo, Leon likely owes no duty to the bank. The loss is purely economic, and there is insufficient proximity unless it can be proven that the audit was prepared for the specific purpose of the bank's loan and that Leon knew this. Without that specific link, policy considerations would prevent a duty from being imposed.

1. Issue: Duty of Care The primary issue is whether the surveyor, Charles, owed a duty of care to the homebuyer, Priya, to avoid causing pure economic loss through a negligent survey.

2. Legal Principles & Application:

• Established Duty: This scenario falls into an established duty category. The case of Smith v Eric S Bush [1990] established that a surveyor providing a report for a property purchase owes a duty of care to the buyer who relies on it. The relationship is sufficiently proximate, reliance is foreseeable, and it is fair, just, and reasonable to impose the duty.
• Caparo Test (for confirmation): Even if treated as a novel situation, the Caparo test would be satisfied:
  • Foreseeability: It is clearly foreseeable that if a surveyor's report is negligent, a buyer relying on it will suffer financial loss.
  • Proximity: There is a direct relationship. Priya instructed and paid Charles. Charles knew Priya would rely on his professional advice for the purchase. This creates a 'special relationship' based on an assumption of responsibility (Hedley Byrne v Heller).
  • Fair, Just & Reasonable: It is fair to impose a duty. Surveyors are paid professionals holding themselves out as having expertise. They can obtain professional indemnity insurance. There are no public policy reasons to deny a duty.

3. Calculation of Loss (Quantum): The loss in such cases is the diminution in the value of the property, i.e., the difference between the price paid and the actual market value at the time of purchase.

• Price Paid by Priya: £295,000
• Actual Value at Purchase: £240,000
• Calculation of Loss: £295,000 - £240,000 = £55,000
• The cost of repair (£50,000) is an alternative measure, but the primary claim is for the overpayment based on the negligent valuation.

4. Conclusion: Charles owed Priya a clear duty of care. He has likely breached this duty (by failing to spot the subsidence), and this breach has caused Priya a quantifiable financial loss. Priya can claim for the economic loss suffered, calculated as £55,000.