Duty of Care - Economic Loss Flashcards
What is economic loss? + example
financial loss not related to physical property,
economic includes profit, trade and revenue
e.g. physical damage to car itself = not economic
cost to fix the car = economic
What are the types of economic loss?
Consequential economic loss
Pure economic loss
What is consequential economic loss?
CAN claim – where the claimant suffers money loss because he has suffered an item of physical loss (e.g. physical loss = damage to car, money loss = fixing the car OR C injures himself at work (physical loss), needs time off and loses money (money loss) – both are consequential
What is pure economic loss?
cannot claim (except for the exceptions, see later) e.g. you are driving to the airport to go on holiday, there has been a car crash ten miles ahead and you are stuck in gridlock. You miss the flight, you or car are not damaged. There has been no physical loss, only monetary loss. This is pure economic loss so there will be no grounds for a claim.
Future loss of profits is pure economic loss and this cannot be claimed
Equation for claim for economic loss…
physical loss + monetary loss = claim for economic loss
Justifications for recovery of economic loss being strict….
- floodgate argument - accidents happened every day. Wouldn’t be practical if every single person could claim
- related to crushing liability, if one person is ordered to pay hundreds of people compensation D couldn’t do this
- Difficult to establish future losses
Spartan Steel & Alloys Ltd v Martin & Co
Highlights the distinction between pure economic and consequential loss:
D cut C’s electricity cable (physical damage), there was not power. 1) the thrown away steel 2) the loss of profit from that steel and 3) the loss of profit from the steel that would have been made in the remaining 14 hours.
Court allowed recovery of the first two but the last one is pure economic loss
When can you sue for pure economic loss (+case)
The Hedley Byrne Principle
C can sue if D makes a makes a negligent statement to someone whom they owe a duty of care and this causes them pure economic loss which is reasonably foreseeable D will be liable for that loss
what was laid down in Hedley v Byrne?
If D makes a negligent statement to someone whom they owe a duty of care and this causes them pure economic loss which is reasonably foreseeable D will be liable for that loss
establishing a duty:
1) a special/fiduciary relationship of trust and confidence between parties
2) Party giving advice has voluntarily assumed responsibility
3) C relied on the information
4) C’s reliance was reasonable in the circumstances
5) D has expertise in the field
what is meant by the party giving advice have voluntarily assumed responsibility?
D states he is prepared for C to rely on the information, this is normally through a contract or fee payment (a disclaimer as in Hedley is the exception to this)
What is meant by C’s reliance was reasonable in the circumstances? + example
C must show he relied on the misstatement and that it was reasonable in the circumstances to do so e.g. it would be reasonable to rely one information given in a business meeting, but not during drinks after work.
Smith v Bush
Facts:C relies on the house surveys of D. D overvalues the house and C later finds out this information. C attempts to sue D for this pure economic loss, D attempts to rely on their exclusion clause (this is prohibited under the Unfair Contract Act
Key Part: HL held a duty of care was owed because the buyer would not purchase the house without the information from D (reliance), and it was not unreasonable to rely on this information because this is the common practice when buying a house.
Caparo Industries plc v Dickman
Facts:C was considering taking over another company. He relied on company audits, took over the business and then found out it was worthless.
Key Part: HL ruled not duty of care was owed because the audits were provided for shareholders, not potential investors. Thus, it was not reasonable to rely on this information.
What is meant by ‘D must poses a particular skill or expertise’?
Common examples = accountants, surveyors, solicitors
This can be extended to non-professionals if they portray themselves as having particular knowledge
Chaudry v Prabhakar
Facts: a friend with some knowledge of care agreed to advice a driver on a second-hand car. It was later found to be unsuitable (he hadn’t noticed it had been in an accident). CA held he was in breach of his duty of care.
Key Part: A duty of care may be established if the D portrays themselves as having particular knowledge or skill. For this reason, it can be extended to social settings. It is a standard objective.
