NEGLIGENT
MISSTATEMENTS
The
professional, any professional such as the valuer and real estate
agent who hold themselves out against the world as an expert are
subject to a duty of care in the information, reports and advice
given to clients. This area of negligence is probably the most
important area of tort affecting the real estate agent as it covers
“economic loss”.
ECONOMIC
LOSS: Where a defendant, as a result of careless or negligent words,
causes purely economic loss (financial loss) to the plaintiff, then
the circumstances in which the defendant is liable to the plaintiff
in negligence are much more closely circumscribed than if the
plaintiff suffered economic loss arising from damage to the person or
property. Where negligent misstatements are concerned, questions such
as whether or not the plaintiff relied on the defendant's statements
or advice to his/her detriment, and whether a special close, or
professional relationship existed between the plaintiff and
defendant, take on crucial significance.
Traditionally,
courts have been hesitant to impose liability for negligent
misstatements, and there were several reasons for this, not least of
which was the fear of indeterminate
liability that
is, liability to almost everybody who may suffer a loss because of a
negligent misstatement made by the professional
EXAMPLE
Imagine
a scenario of a real estate agent acting as an expert in housing
finance, addresses a large hall of interested people on that matter.
He/she was careless in some aspect of the advice given, and could
have reasonably foreseen that the people would pass the advice to
other people who may wish to buy a home (eg colleagues at work).
Then, if reasonable
foreseeability
alone was the sole criterion of liability, the agent would be liable
to all those who acted in the negligent advice to their cost no
matter how remote they were from the agent. The adviser would be
liable to an indeterminate
class
and as such could not estimate in advance the extent of liability.
An
associated reason advanced for wishing to limit the liability for
purely economic loss was that a negligent defendant could be exposed
to claims that were out of all proportion to the extent to which the
defendant's conduct fell below that of a reasonable person.
The
landmark case that extended liability for pure economic loss was
Hedley
Byrne. However,
Hedley Byrne suggested
liability should attach only to those who were in a special
relationship with
the person(s) suffering loss as a result of negligent misstatement.
The
present position is that liability is not limited to a particular
class of persons, or a particular type of transaction. Rather, the
defendant will be found to be under a duty to take care to prevent
economic loss from his/her statements WHEN HE/SHE KNOWS, OR OUGHT TO
KNOW, THAT HIS/HER WORDS ARE SUCH AS TO ENGENDER IN ANOTHER
REASONABLE RELIANCE UPON THEM. Therefore, in the real estate agent
acting as an expert adviser on housing finance scenario above, the
question for the court to firstly decide is whether the agent could
have reasonably foreseen that a workmate of a person attending the
gathering would use the advice given.
This
is why the agent must be careful about casual off the cuff statements
even in informal social situations as the listener may be relying on
the agent’s words as the agent is holding himself/herself out as an
expert on the matter. Of course the agent can qualify his/her
statements so as to make it clear that the words ought not to be
relied on and this is the best advice if statements and advice is
given. In such a case, no liability will attach to the speaker.
PROXIMITY:
The range of the defendant's liability is determined by the concept
of proximity,
and
this is certainly less
than
that encompassed by the notion of reasonable
foreseeability.
In this regard, the High Court has decided that where purely economic
loss results from the defendant's negligence sufficient control on
liability is exercised by confining the ambit of the duty to the
circumstances where the plaintiff individually is (or ought to be)
within the defendant's contemplation.
Therefore,
liability for negligent misstatements is sufficiently confined if
the defendant can reasonably contemplate that an individual (though
unspecified) might properly place reliance on the defendant's words,
and suffer loss if his statement is misleading. Therefore, an agent
would not be liable to economic loss suffered by somebody who finds
his/her professional report and acts on that advice. The agent could
not have reasonably contemplated that his/her report would be used by
a finder. All that is necessary to find liability is that the
statement be of such a character as to engender in the plaintiff
reasonable reliance thereon.
CAUSAL
LINK: Another relevant consideration is that a plaintiff would need
to establish the necessary causal
link between
the defendant's statement and the plaintiff's loss. The loss cannot
be too remote a consequence. It may be difficult to establish this
causal link of showing that the alleged financial loss for which the
plaintiff claims recompense, was in fact a reasonably foreseeable
consequence of the defendant's alleged negligent misstatement. For
example, if the negligent advice given at the housing finance
gathering had been made several
years previously.
The
professional expert in business such as accountant, valuer, real
estate agent, architect or builder, should be careful in any advice
he/she gives with regard its accuracy and about the extent to which
any person may claim to have acted in reliance on it. In many
situations it may be best to refrain from gratuitous advice (offering
an opinion when one is under no duty to do so) or to at least place
the onus back on the recipient by making clear that the advice is
only tentative and should be checked from other sources. In practice,
particularly where written reports are used, it is common to issue a
disclaimer limiting the purpose and/or the party for which and to
whom the advice is given. However, the effect or efficiency of such
disclaimers is not clear and will depend largely on the circumstances
of the case.