Liability For Pure Economic Loss- 13

Question 1

what is pure economic loss?

Answer 1

• Also known as economic loss
• “Pure economic loss” may be defined as loss that is purely financial, in the sense that it does not result from damage to the claimant’s property or injury to the claimant’s person.

Question 2

intro to Pure economic loss..

DOC to avoid causing pure economic loss??

Answer 2

• It is much more difficult to establish a duty of care in respect of economic loss than in respect of damage to property or personal injury.
• No duty of care is owed to avoid causing pure economic loss by careless activities; but a duty of care can be owed to avoid causing economic loss through careless statements.

Question 3

how is pure economic loss different to consequential economic loss?

Answer 3

consequential economic loss= financial loss that is consequent upon damage to the claimant’s person or property.

Question 4

Spartan Steel and Alloys Ltd v Martin & Co Ltd [1973] = illustrates the difference between the three type of losses.

Answer 4

• The defendants, who were construction workers, negligently cut through a cable which supplied power to the plaintiffs’ factory, causing a power cut which lasted for 14½ hours.
• Without electricity, the plaintiffs’ furnace could not operate and they had to close their factory. The metal that was in the furnace at the time the power went off (the “melt”) began to solidify, and to save damaging the furnace the plaintiffs had to throw it away.
• The plaintiffs brought an action for three types of loss:

i. Damage to melt in furnace = recoverable = consequential loss
ii. Lost profits from the sale of metal in furnace = recoverable = consequential loss
iii. Loss of profits from further melts which could have been completed = not recoverable as = ‘pure’ economic loss.

Question 5

Hedley Byrne v Heller [1964] AC- misstatements that can create a duty of care

Answer 5

• easy power company which is an advertising company- easy power says to bank to find out about party- Heller partners says yes the client can be trusted without actually checking the financial strength of the client- easy power lost a lot of money when the client could not pay.
  • Is Heller liable for the financial loss- yes because they knew this information would be relied on- special relationship can create a duty of care so although they didn’t have a contract could still be liable.
  • Only reason not liable is due to their exclusion clause.

Question 6

Hedley Byrne principle summarised:

Answer 6

the existence of a “special relationship” between the claimant and the defendant, involving an “assumption of responsibility” by the defendant; and
• “reasonable reliance” by the claimant.

Question 7

WHEN DOES A DUTY FOR PURE ECONOMIC LOSS ARISE?

Answer 7

some factors:

• Whether D assumed responsibility
• Whether C’s reliance was reasonable
• The purpose of D’s statement
• Whether D made the statement in a social, as opposed to business, context
• The relationship between the parties
• whether D claimed to be an expert
• Practical justice
• D’s state of knowledge

Question 8

WHETHER D ASSUMED RESPONSIBILITY

Lennon V commissioner of Police of the Metropolis 2004

smith V bush

Answer 8

• Smith v Bush [1990] 1 AC 831

• -Lady buying a house-mortgage company would usually ask for the client to pay for the valuation
• -The report goes to the bank-
• -Valuation report said house was safe- when in fact the chimney broke – economic loss due to value of house going down- bank liable since they assumed responsibility – unless they had a exclusion clause

Question 9

Whether C’s reliance was reasonable

Answer 9

• reasonable reliance
• reliance must in fact take place
• reliance in relation to the provision of services

Question 10

The purpose of D’s statement

smith v bush

Answer 10

Smith V Bush:
- The case concerned the purchase of low value domestic property. Cs had paid for ta valuation of property, which was arranged by their mortgage company.
They had no direct contractual relationship with the surveyor and the report stated that only the mortgage company should rely upon the report.
It was however clear that the report would be supplied to the purchaser.
HoL held that the surveyor owed a duty in tort directly to the purchasers, despite the contractual structure.

Question 11

The purpose of D’s statement

Caparo v Dickman

Answer 11

 What is the reason you are getting this information- is it reasonable for you to rely on it and do they know you will rely on it.

Question 12

The purpose of D’s statement

• James McNaughton Paper Group Ltd v Hicks Anderson & Co [1991]

Answer 12

 Accounts were produced which were going to be used and relied upon by a take-over bidder
 They were produced for the company not for the take-over bidder
 The accounts were produced incorrectly and the take over bidder claimed financial loss
Unsuccessful – they were not produced for the purpose of the take-over bidder so they should not have relied on it.

Question 13

Whether D made the statement in a social, as opposed to business, context

Chaudry v Prabhaker [1989] -social context

Answer 13

Liability can only arise if made in a business context
Hedley Byrne- business context

Chaudry v Prabhaker [1989] -social context
• claimant sought assistance from his friend when she was purchasing a car because he had knowledge on the subject. the friend says don’t worry about checking it by a mechanic ill check it for you. She took into consideration the advice given and purchased the car believing that it had not had any accidents. In fact, the car ends up being worthless.
Was held a DOC existed since the friend knew it would be relied on and he had presented himself as a specialist

Question 14

The relationship between the parties

Spring v Guardian Assurance [1995]

Answer 14

• a former employee is dismissed. He then asks for a reference. The employee writes such a reference which leaves doubt in his employment with the company- liable since the way it was written caused employee loss