Liability in Negligence for Injury to People and Damage to Property: Negligence - Economic Loss

Question 1

What are the two main types of economic loss? Explain

Answer 1

• Consequential economic loss - economic loss that results from a physical injury such as loss of income
• Pure economic loss - all other types of economic loss that do not arise from a physical injury

Question 2

Which of the two types of economic loss is usually recoverable? Which isn’t?

Answer 2

• Consequential economic loss is usually recoverable

- Pure economic loss is not recoverable

Question 3

Give a case for pure economic loss

Answer 3

• Murphy v Brentwood District Council (1991)

Question 4

What happened in Murphy v Brentwood District Council (1991)?

Answer 4

• Claimant bought a house but had to sell for a considerable loss when it became unstable
• He sought to recover the loss from the local authority
• HELD - pure economic loss so not recoverable

Question 5

What three things were held in Spartan Steel & Alloys Ltd v Martin & Co Ltd (1973)?

Answer 5

• For physical damage to the factory’s furnaces and metal, damages were payable because the damage was physical
• for the loss of profit on the damaged metal, damages were payable as they were a direct consequence of the physical damage
• for the loss of profit on the metal that was not melted during the time the electricity was off, damages were not payable (pure economic loss)

Question 6

What happened in Caparo Industries PLC v Dickman (1990)?

Answer 6

• Caparo purchased shares in a company based on accounts which misrepresented the company’s financial state
• Caparo brought an action against the auditors, claiming negligence
• HELD - no duty of care owed as the auditor’s report was required by law and was not done at the request of Caparo for the specific purpose of his investment in the company concerned

Question 7

Why have the courts been reluctant to allow damages for pure economic loss? Example?

Answer 7

• The potential claims could be limitless
• If every driver who negligently crashed on the motorway was held to be liable for every employee being late to work because of the subsequent traffic jam, driving a car would become uninsurable