Expert’s Liability to a Third Person at the Point of Intersection of the Law of Contract and the Law of Delict

Author:Urmas Volens
Position:Magister iuris Specialist Counsel, Sorainen Law Firm
Pages:176-187
SUMMARY

1. The problem - 2. The basis of the claim - 2.1. Germany - 2.2. Estonia - 2.3. Switzerland - 2.4. The DCFR - 3. Prerequisites for a claim - 3.1. Trust of an expert - 3.2. Provision of information or opinion - 3.3. Reliance on information - 3.4. Liability - 3.5. Damage and the causal connection - 4. Legal consequences - 5. Evaluation - 6. Conclusions

 
INDEX
FREE EXCERPT
1. The problem

The question of expert's liability arises when an expert of a certain field provides information or an expert opinion to another person in relation to a proprietary matter on the basis of specialist knowledge that later proves to be incorrect.

If the opinion was provided under a contractual relationship, the person who entered into contract with the expert may exercise contractual remedies if the information or opinion proves to be incorrect-primarily claim for the compensation of damage. Contractual remedies cannot generally be used if there is no contract between the parties, or if a person in contractual relationship with the expert presents the expert's opinion to a third party. In this situation, expert's delictual liability is also excluded, since the expert has not committed an unlawful deed toward the recipient of the opinion1.

The purpose of this article is to explain the procedure for settling the above-mentioned situations in the legal orders of Estonia, Germany, and Switzerland, on the basis of the Draft Common Frame of Reference for European contract law 2 (hereinafter ' DCFR'). In principle, there are three routes to settlement: delict law, contract law, and quasi-contract law. Before the problems are settled, the following starting points need to be kept in mind.

Firstly, the principle of mandatum tua gratia 3 has been used since the times of Roman law to state that a person who gave advice to another person is not responsible for damages incurred through his or her advice, unless we are dealing with a contractual relationship or a delict. The basis of this principle is private autonomy, according to which everyone has to decide his or her matters on his or her own and does not need to follow anyone's advice. One expression of private autonomy is freedom of contract-everyone's right to decide whether, with whom, and on what conditions to enter into contract. The principle described is explicitly set forth in § 675 (2) of the German Civil Code 4 (hereinafter ' BGB'), stating that providing information or advice does not create liability, because liability for mere words would not correspond to the concept as generally accepted5.

Estonian and Swiss law lack a corresponding provision, but the starting point is the same. Giving advice to another person without a legal obligation to do so does not generally bring about a contractual or delictual claim against the adviser. The DCFR's Article VI-2:207 is also based on consideration that there is no general liability for advice or information provided by a person outside the legal commitment.

Secondly, the law of delict does not generally protect property as such. Only certain absolute rights are under protection. Liability in the law of delict is generally absent in the case of pure economic loss caused by carelessness. Such interests are protected under contract law.

The purpose of the law of delict is to establish general standards of conduct applied to everyone; the purpose of contract law is to protect the interest of performing a contract. Respectively, the interests protected by the liability systems of the law of delict and contract law are different: in the case of contract law, it is performance interest (positive interest: performance of agreements); in the case of the law of delict, it is integrity interest (negative interest: to avoid violation of rights).

In the German judicial arena, protection from pure economic loss under the law of delict is guaranteed in the case of a result of damage inflicted intentionally and against good morals, or if the unlawful deed is a violation of lawful obligations purposed to protect from pure economic loss6.

Such differentiation in liability in the law of delict is not incidental but a restriction purposefully prescribed by the legislators. Therefore, we are dealing not with lack in the law of delict but with a reasonable restriction to expansion of liability in the law of delict.7

In the case of wrong advice, it is generally pure economic loss that arises-a person relying on advice makes a proprietary decision (i.e., a bank grants a loan on the basis of the opinion of a real-estate valuator, a person buys securities according to a bank's recommendations, or businessmen conclude transactions with each other in reliance on audited annual accounts) he or she would not have made if knowing the correct information, or would have made under different conditions. Loss due to such decisions is generally not compensable in the law of delict.

If the recipient of the opinion or the third person has legitimately relied on expert opinion and the expert knew or had to know of the other person's reliance on his or her opinion, it is considered unfair in all of the legal orders under consideration to leave the risk of incorrectness of opinion solely to the person who relied on that opinion. Therefore, attempts have been made to find a way to ensure expert's liability for incorrect opinion also with respect to a person with whom the expert has no contractual relationship7. The DCFR and the Estonian Law of Obligations Act 8 (hereinafter ' LOA') provide for compensation for such damage expressis verbis. However, the dogmatic grounds for such liabilities are arguable in different legal orders.

2. The basis of the claim
2.1. Germany

According to the BGB, liability in the law of delict generally arises when a person has violated some sort of legal right provided by law or when damage was caused intentionally. The law of delict under the BGB as a rule does not protect from pure economic loss in instances other than those of intentional damage caused contrary to good morals, under the BGB's § 826.

Therefore, after the BGB's entry into force, judicial practice came to look for ways of bringing the damage inflicted by providing incorrect opinion or information outside a contractual relationship within the scope of application of the BGB's § 826. The position was taken that a person who provided information to third parties and knew it was incorrect is intentionally acting against good morals9. The same is said to apply, if, as a result of negligence, objectively incorrect information is provided 'for no good reason' to persons to whom this information has an identifiable importance and the provider of information has to consider the possibility of inflicting damage on the recipient. However, these principles have only been applied in a relationship between the provider of information and the direct recipient; the third person to whom the information was delivered by the direct recipient was left unprotected10.

One shortcoming of early judicial practice is considered to be withdrawal from the original meaning of the law, since the BGB's § 826 was never meant to provide for compensation of damages inflicted by gross negligence11. In principle, judicial practice has found that this provision also applies in cases of gross negligence in respect of circumstances that cause disregard of good morals. Hence, from gross negligence toward good morals, an intent to inflict damage is deduced12.

Consequently, the original scope of the BGB's § 826 is expanded to encompass pure economic loss inflicted through gross negligence.

The practice of expanding the scope of the BGB's § 826 is nowadays marginalising in nature. Newer judicial practice is working on the fiction of a silent contract for providing information 13 , expanding the scope of application of the basis of contractual and quasi-contractual claims, and trying to accommodate expert's liability under different parts of the BGB system of claims14.

Arising of a silent contract is assumed if (a) the advice or information has a recognisably relevant economic meaning to the recipient from the viewpoint of the provider of the information and (b) the adviser has special knowledge or is personally interested in giving the advice for economic reasons15. The BGB's § 826 is applied as the basis for liability only if the above-mentioned prerequisites are not met16.

On the basis of those principles, the situations in which an expert's opinion is relied on by a person who obtained the information directly from the expert without having a contractual relationship with him or her are settled. If a person who has had no direct contact with the provider of information-for example, being given the advice by a person who received it from the provider-relies on incorrect advice from the provider, creating contractual fiction is not sufficient. Such a situation arises when, for example, a person wishing to obtain a loan from a bank orders valuation of real estate from a real-estate assessor, wishing to use the real estate as security for his or her loan application. In this case, the bank has no contractual relationship with the real-estate valuator.

Therefore, an institution of contract with protective effects for third parties has been introduced17. Initially, the Federal Court of Justice 18 (hereinafter ' BGH') applied this in cases of information provided by a person appointed as an expert with approval from an official authority or some similar action, if the information was recognisably intended for presentation to a third party and had to express special probative value 19 according to the will of the seeker of advice.

According to the latest judicial practice, national or other public acknowledgement of expertise is no longer a prerequisite. The same principles of liability apply when the interests of the third person are also protected under contract. The BGH practice does...

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