2.4 Pure Economic Loss and Product Liability

Question 1

What is pure economic loss?

Answer 1

Loss that is not consequent upon personal injury or property damage.

Examples of pure economic loss include:

• Loss of income suffered by a family whose principal earner dies in an accident. The physical injury is caused to the deceased, not the family.
• Loss of market value of a property owing to the inadequate specifications of foundations by an architect.
• Loss of production suffered by an enterprise whose electricity supply is interrupted by a contractor excavating a public utility.

Question 2

What is consequential economic loss?

Answer 2

Loss that occurs as a result of physical damage (personal injury and property damage) suffered by the claimant.

Question 3

What is the common law rule regarding pure economic loss?

Answer 3

There is no recovery for pure economic loss, but the courts are willing to push the boundaries of consequential economic loss and to vary the rules where they seem to produce a just outcome

Question 4

What is the exception to the rule that there is no recovery for pure economic loss?

Answer 4

D has committed a negligent act (or omission) or made a negligent misstatement and as a result, the claimant has suffered a financial loss.

Question 5

How is economic loss recoverable using the law of contract?

Answer 5

The buyer of a defective product will usually have a remedy against the seller in contract law.

Under the contract of sale, the buyer may be able to sue the seller for breach of any relevant express terms in the contract and or/any relevant term that is implied into the contract.

Question 6

How is economic loss recoverable using the law of tort?

Answer 6

Pure economic loss can be claimed for negligent misstatement by relying on the duty of care arising from Hedley Byrne & Co Ltd v Heller & Partners Ltd

Question 7

When is a negligent misstatement made?

Answer 7

D gives defective advice to the claimant in a negligent manner, which the claimant relies upon and as a result, sustains damage. The advice need not be dishonestly given.

Question 8

Negligent Misstatement

What does the claimant need to do to establish pure economic loss for negligent misstatement?

Answer 8

Hedley Byrne Criteria:

1. [ Special relationship ] The existence of a special relationship (e.g a fiduciary duty exists)
2. [ Voluntary assumption of risk ] The party preparing the advice in which the misstatement was made has voluntarily assumed the risk
3. [ Reliance ] There has been reliance on the statement
4. [ Reliance was reasonable ] The reliance was reasonable

Question 9

Negligent misstatement

What must the claimant prove in addition to the elements from Hedley Byrne for establishing negligent misstatement?

Answer 9

The duty of care was breached and the false misrepresentation played a real and substantial part in inducing the claimant to act - in other words, they relied on the misstatement.

Question 10

In which situations can the Hedley Byrne principle be extended to?

Answer 10

• The negligent giving of advice
• The non-performance of services in relation to executing a will
• Failing to advise on a pension

Question 11

How can product liability be established?

Answer 11

Whether an action is brought in tort or contract will depend on the types of defectives involved.

Law of contract and CRA - deals with bringing a claim against a retailer

Law of tort - deals with bringing a claim for negligence against a manufacturer (Donoghue v Stevenson)

Question 12

What elements must be established for the principle of negligence with regards to a defective product?

Answer 12

Establishing a duty of care, a breach of the duty, causation, remoteness and damage.

Question 13

Explain the duty of care for negligence in product liability

Answer 13

Starting point is Donoghue v Stevenson:

A manufacturer owes a duty to the consumer to take reasonable care in the manufacture of their product.

Duty is not just owed by the manufacturer - all those who may have been involved with the product.

Duty extends beyond the product itself (containers, packaging, instructions)

Question 14

How is ‘consumer’ defined in establishing the principle of negligence for product liability?

Answer 14

Consumer - interpreted broadly as anyone who ought to be foreseen as being affected by the product.

Question 15

Explain how breach is determined for the principle of negligence in product liability

Answer 15

Breach of the duty to take reasonable care in producing the goods (assessed on a case-by-case basis)

The court will often infer a breach because of the presence of the defect.

It is possible for a manufacturer to rebut the presumption of carelessness by producing evidence to show that there was no breach.

Question 16

How is D judged when determining the standard of care and if this has been breached to establish product liability?

Answer 16

D must be judged on the knowledge available at the time of manufacture. If the manufacturer becomes aware of a defect, depending on the seriousness, they may need to warn the public or even recall the product.

Question 17

Explain how causation is determined for the principle of negligence in product liability

Answer 17

Difficult when there are several parties involved in transmitting the goods from manufacturer to consumer.

Manufacturer may recommend that the products should be used in a particular way or tested before use. If consumer fails to do this, it may break the chain of causation.

Question 18

Explain how damage is determined for the principle of negligence in product liability

Answer 18

Any damage caused must be reasonably foreseeable - not too remote. It is possible to claim for personal injury, property damage and consequential economic loss.

Question 19

What are the defences available to a manufacturer for product liability?

Answer 19

The usual defences that are available in negligence.

Question 20

How does liability under the Consumer Protection Act 1987 differ to liability in negligence when bringing a product liability claim?

Answer 20

The CPA imposes strict liability for death, personal injury and some property damage (s5(1), (2) and (4) - caused either wholly or partly by a defect in the product - s2(1)).

Liability under the CPA exists alongside liability in negligence, and in some cases a common law claim may succeed where a claim would not be available under the CPA.

Question 21

Who can sue and be sued under the CPA 1987 for damage caused by a defective product?

Answer 21

Who can make a claim - anyone who suffers damage as a result of the defective product

Who can be sued - producers, own branders, importers, other suppliers

Question 22

What is the definition of a ‘product’ under the CPA s1(2)?

Answer 22

Goods, electricity, components and raw materials.

Further definition of goods (s45): substances, crops, things comprised in land by virtue of being attached to it, any ship, aircraft or vehicle.

Question 23

What should be considered for a product liability claim at common law?

Answer 23

• Who is the defendant?
• Do they owe a duty of care?

Negligence elements need to be proven: Duty of care, breach of the duty of care, causation and damage

Question 24

What should be considered for a product liability claim under the CPA?

Answer 24

• Be careful about the types of goods and whether they are covered by the CPA.
• Check for any limitation periods for bringing a claim.
• It has a wider scope than common law.
• What is the defect?
• What are the goods?

Question 25

Define how a defect can occur under the CPA s3(1).

Answer 25

A defect occurs if the safety of the product is not such as persons generally are entitled to expect.

Question 26

What factors are considered in determining if a defect is in place? (CPA s3(2) a - c))?

Answer 26

• The manner in which, and the purposes for which the product has been marketed
• The packaging
• The use of quality marks
• Any instructions or warnings with the product
• What might reasonably be expected to be done with the product
• The time when the product was supplied, that is, when the product was put into circulation

Question 27

What are the main defences for product liability under the CPA s4(1) a - f?

Answer 27

1. [Compliance with requirements] A defect being attributable to compliance with statutory requirements
2. [No supply] D not supplying the product (e.g stolen goods)
3. [Not in the course of business] The supply of the product was not in the course of a business
4. [Defect not in existence at the time] The defect did not exist at the relevant time
5. [Development risk] The development risk defence (N.B: this is not available if a generic defect either was known, or should have been known, about that time)
6. [Component with another product] Defect was with a component within another product - defect was integral to the design of the product that the component was a part of

Question 28

What is the limitation period for product liability claims?

Answer 28

Claim must be brought within 3 years of the date that either:

• The injury or damage occurred; or
• When the claimant became aware, or should have become aware of the damage.

Question 29

What is the long stop limitation for product liability claims?

Answer 29

There is a long stop of 10 years after the product was put into circulation by the defendants. No claims can be made after that point in time.

Question 30

What is the significance of strict liability imposed by the Consumer Protection Act (CPA)?

Answer 30

The CPA imposes strict liability on manufacturers of defective products for harm caused by those products.

This means that people who are injured by defective products can sue for compensation without having to prove that the manufacturer was negligent.

It is merely necessary to prove that the product was defective, and that any injury or damage was most likely caused by the product.

Question 31

Explain the applicability of the CPA in relation to product liability

Answer 31

A claim may be brought under the CPA by any person who is injured by a ‘defective product’, regardless of whether that person purchased the product.

A claim may be brought for death, personal injury or damage to private property in excess of £275. However, no claim may be brought for damage to business property or for ‘pure’ economic losses. In particular, the CPA provides that a claim cannot be made for the loss of or damage to the defective product itself.

Other than these restrictions, the CPA imposes no financial limit on the producer’s total liability.

Question 32

When can a claim for defective goods be made?

Answer 32

A claim in respect of defective goods can only be made where the claimant has suffered personal injury, property damage, or consequential loss.

A claim will not stand in cases where there is pure economic loss.