Chapter 4 - Negligence: Economic Loss & Psychiatric Harm

Question 1

What is the definition of pure economic loss?

Answer 1

Pure economic loss is financial damage suffered by the claimant that is not consequent upon any physical damage to the claimant’s property or person.

Question 1

Provide some examples of pure economic loss.

Answer 1

• Money lost by readers investing in shares based on negligent advice from a journalist.
• Psychiatric harm suffered by witnesses of an accident who did not sustain physical injuries.
• Loss of profit on future melts in Spartan Steel caused by damage to the electricity cable of the supplier.
• Loss of business for an auctioneer due to a forced closure of cattle markets caused by the escape of foot and mouth disease.
• Financial loss suffered by a takeover bidder who relied on hurriedly prepared draft accounts.

Question 2

What is consequential economic loss?

Answer 2

Consequential economic loss is financial loss that is a direct result of physical damage to the claimant’s property or person.

Question 3

Provide some examples of consequential economic loss.

Answer 3

• Money spent on repairing a shed and paying for storage following damage caused by a negligent bonfire.
• Loss of wages and costs of physiotherapy treatment following a broken leg caused by negligence.
• Loss of profits on melts solidified in the furnace and damage to the melts themselves in Spartan Steel.

Question 4

What is the general rule regarding a duty of care for pure economic loss?

Answer 4

As a general rule, a defendant does not owe a duty of care to a claimant not to cause pure economic loss.

Question 5

Why does the law limit recovery for pure economic loss?

Answer 5

• The main concern is the potential for unlimited liability.
• If recovery were allowed, the number of claimants and the extent of their claims could become boundless.
• This could lead to an unmanageable flood of litigation.

Question 6

Are there any exceptions to the general rule of no duty of care for pure economic loss?

Answer 6

Yes, there are limited situations where a duty of care for pure economic loss can arise. These situations involve an especially close relationship between the claimant and defendant, where the defendant has assumed a responsibility towards the claimant.

Question 7

When can pure economic loss caused by acquiring a defective item of property be recovered?

Answer 7

Pure economic loss caused by acquiring a defective item of property is generally not recoverable. However, if the defect causes personal injury or damage to other property belonging to the claimant, a duty of care may arise.

Question 8

Explain the case of Murphy v Brentwood DC and what it established.

Answer 8

In Murphy v Brentwood DC , the claimant purchased a house with defective foundations that were negligently approved by the council. The House of Lords held that the loss suffered was pure economic loss and not recoverable. This case established that acquiring a defective property without consequential damage to other property or person constitutes pure economic loss.

Question 9

What are the two categories of economic loss unconnected to personal injury or physical damage?

Answer 9

• Economic loss caused by damage to the property of a third party.
• Economic loss caused where there is no personal injury or damage to any property.

Question 10

Explain the case of Spartan Steel & Alloys Ltd v Martin & Co and its key findings.

Answer 10

• In Spartan Steel, the defendant’s negligence caused a power cut to the claimant’s factory. The claimant suffered losses from solidified melts, loss of profit on those melts, and loss of profit on melts that could not be processed due to the power outage.
• The court held that the loss of profit on future melts was pure economic loss and not recoverable because it resulted from damage to the electricity cable, which belonged to a third party. The loss of profit on the solidified melts and the damage to the melts themselves were considered recoverable as they resulted from damage to the claimant’s property.

Question 11

What is the general rule for duty of care in cases of economic loss caused by negligent actions where there is no physical damage?

Answer 11

The general rule is that there is no duty of care for pure economic loss.

Question 12

Explain the outcome of Weller & Co v Foot and Mouth Disease Research Institute.

Answer 12

• In Weller & Co v Foot and Mouth Disease Research Institute , the escape of a virus from the defendant’s premises caused the closure of cattle markets, leading to financial losses for the claimant auctioneers.
• The court held that the claimant could not recover its loss because it was classified as pure economic loss, not caused by physical damage.

Question 13

What is the general rule regarding a duty of care for pure economic loss caused by negligent statements?

Answer 13

The general rule is that there is no duty of care for pure economic loss caused by negligent statements. This is due to the potential for boundless liability as the defendant may not be aware of the number of potential claimants relying on their statement.

Question 14

What is the exception to the general rule for pure economic loss caused by negligent statements?

Answer 14

The exception arises when a special relationship exists between the defendant and the claimant.

Question 15

What case established the possibility of liability for negligent misstatements causing pure economic loss?

Answer 15

Hedley Byrne & Co Ltd v Heller & Partners Ltd

Question 16

What are the two key elements required to establish a special relationship under Hedley Byrne?

Answer 16

• An assumption of responsibility by the defendant.
• Reasonable reliance by the claimant.

Question 17

What case expanded on the special relationship test established in Hedley Byrne?

Answer 17

Caparo Industries plc v Dickman

Question 18

What are the four criteria for a defendant to have assumed responsibility towards a claimant, as established in Caparo?

Answer 18

• The defendant knew the purpose for which the advice was required.
• The defendant knew that the advice would be communicated to the claimant (specifically or as a member of an ascertainable class).
• The defendant knew that the claimant was likely to act on the advice without independent inquiry.
• The advice was acted on by the claimant to their detriment.

Question 19

Explain the outcome of James McNaughton Papers Group Ltd v Hicks Anderson & Co.

Answer 19

In James McNaughton Papers Group Ltd v Hicks Anderson & Co , the court decided that an accountant did not owe a duty of care to a takeover bidder who relied on draft accounts because there was insufficient proximity between them. The accountant was not aware that the accounts would be used for that specific purpose.

Question 20

What did the court decide in Morgan Crucible Co plc v Hill Samuel Bank Ltd?

Answer 20

In Morgan Crucible Co plc v Hill Samuel Bank Ltd , the court decided that directors and financial advisors of a target company could owe a duty of care to a takeover bidder if they make representations to influence the bidder’s conduct. The proximity was established because the bidder and transaction were known.

Question 21

When is a duty of care unlikely to be owed in relation to advice?

Answer 21

A duty of care is generally not owed in social situations where advice is given, as there is no assumption of responsibility.

Question 22

What was the exception to the general rule for duty of care in social situations, as seen in Chaudhry v Prabhakar?

Answer 22

In Chaudhry v Prabhakar , although the advice regarding a car purchase was given in a social context, the defendant owed a duty of care because of their superior knowledge about cars and the claimant’s explicit reliance on that expertise.

Question 23

What effect did the Caparo case have on proving a duty of care for negligent statements?

Answer 23

While Caparo didn’t drastically change the law, it made it harder for claimants to prove a duty of care for negligent statements by restating and emphasizing the need to establish proximity.

Question 24

To what situations has the Hedley Byrne principle been extended?

Answer 24

The Hedley Byrne principle has been extended to a wider class of cases where the defendant has assumed responsibility towards the claimant, including:
* Cases where the negligent statement was made to a third party who relied on it to the detriment of the claimant, like in Spring v Guardian Assurance plc.
* Cases involving the negligent provision of professional services where there is an assumption of responsibility, such as White v Jones and Henderson v Merrett Syndicates Ltd.

Question 25

Explain the outcome of Spring v Guardian Assurance plc.

Answer 25

In Spring v Guardian Assurance plc , a former employer provided a negligent reference that caused the claimant to lose a job opportunity. The court held that a duty of care was owed even though the statement was made to a third party because the employer had assumed responsibility towards the claimant in providing the reference.

Question 26

Explain the outcome of White v Jones.

Answer 26

In White v Jones , a solicitor’s delay in drafting a will resulted in a potential beneficiary losing their inheritance. The court held that the solicitor owed a duty of care to the beneficiary, extending the Hedley Byrne principle to negligent services. This was because the solicitor could foresee the detrimental impact on the beneficiaries if the will was not prepared before the testator’s death.

Question 27

Explain the significance of Henderson v Merrett Syndicates Ltd in relation to concurrent duties in tort and contract.

Answer 27

Henderson v Merrett Syndicates Ltd established that claimants could bring a claim in tort even if they had a contract with the defendant for the same services, provided that the duty of care in tort was consistent with the contractual duties.

Question 28

What other elements, besides duty of care, need to be considered in a claim for pure economic loss?

Answer 28

• Breach of duty: Whether the defendant’s conduct fell below the standard of a reasonable person or professional in the circumstances.
• Causation of damage: Whether the defendant’s breach actually caused the claimant’s loss.

Question 29

How is breach of duty established in claims for pure economic loss caused by negligent advice?

Answer 29

The claimant needs to prove that the defendant failed to meet the standard of care expected of a reasonable professional in that field, using the Bolam test.

Question 30

What are the requirements for excluding liability for negligence?

Answer 30

Notice: Reasonable steps must have been taken to bring the exclusion notice to the attention of the claimant before the tort was committed.
Wording: The wording of the notice must cover the loss suffered by the claimant.
Statutory Control: The Unfair Contract Terms Act 1977 (UCTA) and the Consumer Rights Act 2015 (CRA) restrict the ability to exclude liability.

Question 31

What types of losses cannot be excluded under UCTA 1977 and CRA 2015?

Answer 31

Liability for death or personal injury resulting from negligence cannot be excluded under s 2(1) of UCTA 1977 and s 65(1) of CRA 2015.

Question 32

When can liability for other losses (not death or personal injury) be excluded?

Answer 32

Liability for other losses can be excluded if the exclusion satisfies the requirements of reasonableness under s 2(2) of UCTA 1977 or fairness under s 62 of CRA 2015.

Question 33

What factors determine the reasonableness of an exclusion notice under UCTA 1977?

Answer 33

Section 11(3) of UCTA 1977 considers the fairness and reasonableness of reliance on the exclusion notice, given the circumstances when the liability arose.

Question 34

What factors are considered when assessing fairness under CRA 2015?

Answer 34

The concept of ‘fairness’ under s 62 of CRA 2015 includes similar considerations to ‘reasonableness’ under UCTA 1977. It also requires good faith and focuses on any significant imbalance in rights and obligations that detrimentally affect the consumer.

Question 35

What did the House of Lords decide in Smith v Eric S Bush; Harris v Wyre Forest District Council?

Answer 35

In Smith v Eric S Bush; Harris v Wyre Forest District Council , the House of Lords ruled that a duty of care was owed by valuers/surveyors to house purchasers. They found that the exclusion notices used, which attempted to deny responsibility for accuracy, did not meet the reasonableness requirement under UCTA 1977.

Question 36

List factors considered when determining the reasonableness of an exclusion notice under UCTA 1977.

Answer 36

• Equality of bargaining power between the parties.
• Availability of alternative sources of advice (considering cost and time).
• Difficulty of the task for which liability is being excluded.
• Practical consequences, including financial stakes and the parties’ ability to bear the loss (especially regarding insurance).

Question 37

Define pure psychiatric harm.

Answer 37

Pure psychiatric harm is psychiatric damage suffered without any physical impact or injury to the claimant.

Question 38

What is the general rule regarding a duty of care for pure psychiatric harm?

Answer 38

As a general rule, a defendant does not owe a duty of care to a claimant not to cause pure psychiatric harm. This is because of the lack of proximity between the claimant and defendant and the potential for indeterminate liability.

Question 39

What are the limiting factors for a duty of care to be owed for pure psychiatric harm?

Answer 39

• The injury must be a medically recognized psychiatric illness or a shock-induced physical condition.
• The claimant must be either a primary victim or a secondary victim who fulfills specific requirements.

Question 40

What is the difference between pure psychiatric harm and consequential psychiatric harm?

Answer 40

• Pure psychiatric harm occurs in the absence of physical injury.
• Consequential psychiatric harm develops as a result of physical injury.

Question 41

What is the requirement for the type of psychiatric harm that can be recovered in cases of pure psychiatric harm?

Answer 41

The harm must be a medically recognized psychiatric illness or a shock-induced physical condition, excluding simple anxiety and worry.

Question 42

Differentiate between primary and secondary victims of pure psychiatric harm.

Answer 42

• Primary victims: Those directly involved in the incident, either within the area of danger or reasonably believing they were in danger.
• Secondary victims: Those not directly involved, who witness injury to another or fear for someone else’s safety.

Question 43

What are the requirements for a duty of care to be owed to a primary victim for pure psychiatric harm?

Answer 43

• The primary victim is owed a duty of care for their pure psychiatric harm.
• It must be reasonably foreseeable that the defendant’s negligence would cause physical injury to the primary victim (even if no physical injury actually occurs).

Question 44

What is the significance of Page v Smith?

Answer 44

In Page v Smith , the House of Lords determined that if physical injury to a primary victim was foreseeable, a duty of care is owed even if the actual harm suffered was purely psychiatric.

Question 45

Summarize the Dulieu v White & Sons case and its relevance.

Answer 45

Dulieu v White & Sons involves a pregnant barmaid who suffered shock and miscarriage after a horse-drawn van crashed into her workplace. The court found the defendants owed her a duty of care as the negligent act created a foreseeable risk of physical harm. This case, though predating the categorization of victims, illustrates the concept of a primary victim and the foreseeability of physical harm as a basis for duty of care.

Question 46

Explain the significance of the Alcock v Chief Constable of South Yorkshire Police case.

Answer 46

Alcock v Chief Constable of South Yorkshire Police involved claims by relatives of victims of the Hillsborough disaster. The court established a more stringent test for duty of care owed to secondary victims. This case defined the specific requirements that secondary victims must satisfy to recover damages for pure psychiatric harm.

Question 47

What are the four requirements (Alcock control mechanisms) that secondary victims must satisfy to establish a duty of care for pure psychiatric harm?

Answer 47

1. Foreseeability of psychiatric harm: It must be reasonably foreseeable that a person of normal fortitude in the claimant’s position would suffer psychiatric illness.
2. Proximity of relationship: The claimant must have a close relationship of love and affection with the person endangered by the defendant’s negligence.
3. Proximity in time and space: The claimant must be present at the accident or its immediate aftermath.
4. Proximity of perception: The claimant must directly perceive the accident or its immediate aftermath through their own senses (sight or hearing).

Question 48

What is the difference in the foreseeability requirement for primary and secondary victims?

Answer 48

• For primary victims, only the risk of physical injury needs to be foreseeable.
• Secondary victims must demonstrate that psychiatric harm itself was a foreseeable consequence of the defendant’s negligence.

Question 49

What categories of relationships have a presumption of close ties of love and affection in claims for pure psychiatric harm by secondary victims?

Answer 49

Relationships with a presumption of close ties of love and affection include parent/child, husband/wife, and fiancé/fiancée.

Question 50

Can the presumption of love and affection be rebutted?

Answer 50

Yes, the defendant can present evidence to rebut this presumption if they know that, despite falling into a presumptive category, the relationship was not close in reality.

Question 51

What must claimants outside the presumptive categories prove?

Answer 51

Claimants falling outside the presumptive categories must provide evidence to prove that a close relationship of love and affection existed.

Question 52

What are the requirements for proximity in time and space in claims by secondary victims?

Answer 52

• Claimants need not be present at the time of the incident but must encounter the immediate aftermath.
• The concept of ‘immediate aftermath’ is determined on a case-by-case basis, as illustrated by McLoughlin v O’Brian and Alcock.

Question 53

Explain the significance of McLoughlin v O’Brian.

Answer 53

In McLoughlin v O’Brian , the court allowed a mother to recover for pure psychiatric harm after seeing her injured family at the hospital an hour after a car accident. This case expanded the concept of ‘immediate aftermath’ in proximity in time and space for secondary victims.

Question 54

Explain the proximity of perception requirement for secondary victims.

Answer 54

• The claimant must experience the accident or its immediate aftermath through their own senses of sight or hearing.
• Communication of the event by a third party is insufficient to establish a duty of care.

Question 55

What was the decision in Alcock regarding live television broadcasts and duty of care to secondary victims?

Answer 55

The House of Lords in Alcock determined that watching live television broadcasts of the Hillsborough disaster did not satisfy the proximity of perception requirement, as the broadcasts did not show identifiable individuals suffering.

Question 56

Under what circumstances could a live television broadcast potentially establish a duty of care for psychiatric harm?

Answer 56

The broadcast could be considered equivalent to direct perception if it showed the suffering of recognizable individuals, violating broadcasting codes of ethics.

Question 57

How are rescuers classified in pure psychiatric harm cases?

Answer 57

• Primary victim: Rescuers who are or believe themselves to be in the actual area of danger.
• Secondary victim: Rescuers not in the area of danger and therefore not exposed to a risk of physical injury.

Question 58

Explain the outcome of White v Chief Constable of South Yorkshire Police in relation to rescuers.

Answer 58

In White v Chief Constable of South Yorkshire Police , the court held that rescuers are not owed a special duty of care for psychiatric harm solely because of their role. They must meet the same requirements as other primary or secondary victims.

Question 59

What is the likelihood of rescuers satisfying the Alcock test?

Answer 59

Professional rescuers may satisfy the foreseeability and proximity in time and space requirements. However, they are unlikely to have a close relationship of love and affection with the immediate victims, making it difficult to establish proximity of relationship.

Question 60

Summarize the Chadwick v British Railways Board case.

Answer 60

In Chadwick v British Railways Board , a rescuer who assisted at the scene of a train crash successfully claimed for pure psychiatric harm as he was considered a primary victim due to his presence in the danger zone.

Question 61

What other elements of a negligence claim need to be established in pure psychiatric harm cases?

Answer 61

• Breach of duty: Whether the defendant’s conduct fell below the standard of care expected of a reasonable person.
• Causation of damage: Whether the defendant’s breach caused the claimant’s psychiatric harm.

Question 62

Explain the ‘egg-shell skull’ rule and its relevance in pure psychiatric harm claims.

Answer 62

The ‘egg-shell skull’ rule states that a defendant is liable for the full extent of a claimant’s injuries, even if those injuries are more severe than could be reasonably foreseen due to a pre-existing vulnerability. In psychiatric harm cases, this means a claimant can recover for the full extent of their psychiatric harm even if they have a pre-existing condition that makes them more susceptible.

Question 63

How does the ‘egg-shell skull’ rule apply to secondary victims?

Answer 63

While secondary victims must still prove that psychiatric injury was foreseeable in a person of normal fortitude, the ‘egg-shell skull’ rule allows them to recover damages for the full extent of their injury, even if it is greater than what was foreseeable due to their pre-existing vulnerability.

Question 64

How does the ‘egg-shell skull’ rule apply to primary victims?

Answer 64

The ‘egg-shell skull’ rule applies to primary victims in the same way as any other negligence claim. As long as some harm was foreseeable, the defendant is liable for the full extent of the injury, even if exacerbated by a pre-existing condition, as seen in Page v Smith.