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


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.